Las Vegas Appraisal

Appraisal - How much is a home worth?

Whether you are selling, buying or just curious, there are numerous approaches to determining the value of a property. The two most common methods are: 
 

1. A Competitive Market Analysis (CMA), usually performed by a real estate agent for either a buyer or seller. This approach compares the price of the subject property with recent sales of similar homes.
2. An Appraisal. This is a more detailed method employed by a professional appraiser. In Nevada an appraiser must be licensed. Carries more legal weight than a CMA.

If the Realtor and appraiser are both good, then the CMA and the appraisal should be very close in price. A CMA is (or should be) free. An appraiser will cost around $300., or more. When a home is sold, both the CMA and appraising methods are usually applied. The seller will call an agent (or a few agents) to get an idea about the value of the home. The agent will arrive at the listing appointment with a CMA in hand to help the seller arrive at a list price. When potential buyers look at the property, their agents should also calculate a CMA. When the home is sold, the lending institution will insist that an appraiser be hired. 
 

Tip: When submitting an offer to purchase, be sure that the offer contains 2 provisions:  The appraiser is to be paid by the seller. After all, it’s the sellers responsibility to prove that the home is worth at least as much as you are offering to pay. If the findings do not meet (or exceed) the offer price, the deal is off. Sometimes people are willing to pay more than the home is worth but lenders are not. Any excess over the appraised price will have to be paid in cash.

The real world

Many homes are overpriced. If all listing agents prepare a CMA for their clients, how is this possible? Either the seller is not listening to their agent or the agent’s CMA is wrong. Right? Well... if you interviewed three agents to list your home and their CMAs ranged from $145,000 to $160,000 wouldn’t you be inclined to list your home with the $160k company? Listing agents know this and that’s why they tend to inflate prices. Sellers are not innocent either. John Q. Seller knows for a fact that the Smith home down the street sold for $175k three months ago and that house wasn’t as nice as his! He conveniently forgets that the home was on the market for over a year at $175k and finally sold for $143k with the sellers carrying back a second mortgage for $20,000. The Smiths had recently recarpeted the entire house and remodeled their kitchen.

The MIOP approach

Many sellers use the MIOP approach to home value. That’s Money I Owe People. The seller in this case has refinanced the home for 125% of its value to pay off credit card balances and then turned around and run up the credit cards again! Rather than curb his spending habits, he has decided to sell his home. Let’s see.. He paid $140,000 for the home one year ago; put 3% down and included all his closing costs in the mortgage, refinanced 6 months later and included that lender’s charges... get the picture? He now owes more that the house is worth and is in serious debt. In this situation it is impossible for the seller to look at home value in any sort of rational way. Greed and desperation have taken hold. There probably isn’t any reason to look at his home because he can’t lower the price. Even if some unsuspecting soul offers him the list price, the whole deal will fall apart when a professional appraiser inspects the home.

The CMA

The aim of a Competitive Market Analysis (CMA) is to find a similar home that has sold within the past six months. The more homes we find, the more valid our CMA. 

Most Las Vegas homes were built in tracts, that is to say there are many similar homes in the immediate neighborhood. Today, for example, a typical new home tract will contain four models and every home in that tract will be one of those styles. So finding a comparable property is relatively easy. 

Ideally, the home will be identical to our subject property. In actual fact, this is impossible. Even if we found two identical properties, the one closest to the park would be more valuable than the one next door to the city dump. No two properties are ever identical. 

I once lived in a 35-year-old neighborhood. Even though there were originally only two basic models sold in our tract, the area doesn’t have that “cookie cutter” appearance. Over the years, folks have remodeled, landscaped and decorated these homes so that each has a rather unique appearance. My next-door neighbor even added a second story to the building. In general, older homes are more difficult to compare. 
 
If we find a few similar properties that have sold within the past 6 months, our job is easy. If not, we have to expand our criteria either by searching through neighboring tracts or by going back further than 6 months. Keep in mind that home prices do appreciate naturally over time so an increase of  2% a year would not be out of line.

Tax Records

The Clark County Assessor’s office contains essential information about every piece of property in the Las Vegas Valley. You may search through these records yourself by clicking here. If your agent has given you a copy of the MLS Listing form you may want to double check that information against the tax records. If there is a discrepancy, assume that the tax records are accurate and ask your agent for clarification.

Pools & spas

So you just spent $25,000 putting in a new pool. Don’t expect to get your money back anytime soon. The sad news is that pools and spas will appraise at about $5,000 regardless of what you paid. The same is true of many upgrades and additions. While they might make the home more appealing, they do not necessarily add much to the value of the home. 

As a buyer, are you better off looking for a home with a pool or having one installed yourself? Yes, no and maybe. With older homes (in Vegas that means 25-50 years) pools are usually a bargain. The seller probably paid less than $5,000 and the appraiser will put a value of $5,000 on it. You won’t pay much more for an older home with a pool than one without. On the other hand, the seller of a newer home remembers exactly how much he paid for the pool and wants to recoup his money. As a matter of fact, he financed the pool and still owes $18,000. When he sees the appraised amount, if it ever comes to that, he will be in for the pool shock of his life :>). By the way, you will notice that all pools in Las Vegas listings are described as “sparkling”. Sparkling pools do not appraise any higher than normal ones.

A Sample CMA

The Professional Appraiser

Appraisers use 3 methods of determining value; the sales comparison approach (very much like a CMA), the Cost approach (what it would cost to replace the home) and the income approach (used to appraise commercial rental properties). The Sales Comparison approach is used for most residential real estate.

Different types of loans may require a special type of procedure. For example, FHA and VA loans require that the appraiser be “approved” by them and that certain forms be used and that certain conditions be met.

The seller and his agent wants to get the highest price while the buyer and his agent have offered a certain price and are hoping that the appraiser will support that price. Even the lender is hoping that the deal will go through. After all, he doesn’t make any money if there is no sale. Only the appraiser is working for a flat fee and has no vested interest in the deal. He will be paid regardless of the outcome of the appraisal. As I mentioned earlier, the seller should pay for the job but the lender will hire the appraiser. I suspect that an appraiser who consistently comes in with lower home values will probably not be hired as often by lenders as one who’s appraisals help close the most loans. In this sense, the buyer’s agent’s CMA may in fact be a more accurate reflection of the true market value. Market value is defined as the probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale. 
 
 

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