An Open Letter to Appraisers In the Las Vegas Real Estate Market

For the last three years, my team and I have purchased, renovated and resold over 100 properties in the Northwest Las Vegas area. Currently, our greatest challenge lies not in construction headaches, buying competition or even the scarcity of financing but in obtaining fair appraisals for our renovated homes that are re-entering the market.

Our business model consists of purchasing homes at a discount (REOs, trustees’ sales, and short sales), fixing them up, and selling them at today's retail value. Our properties sell at the top of the market because of the quality that we put into them. Most of our homes are literally better than new construction. We only rehab houses that are 10 years old or newer, and then we put in lots of upgrades that builders do not: landscaping, ceiling fans, blinds, upgraded flooring and fixtures, complete appliance packages (often including washer and dryer.) Of course, we also include new carpet, new (non-white) paint, and the like.

Even though our properties are generally better than any other homes available in the neighborhood, we still generally price them below the highest recent comp for the area. This is because we know that because our property is a flip (being resold within 90 days of our purchase) it is going to be more closely scrutinized by the lending bank and will often require two appraisals.

Our request to you, the appraiser, is simply that you compare apples to apples when drawing up your appraisal. As you know, most distressed properties (REOs and short sales) are in very poor condition. Our homes are not distressed and as such they sell for a price higher than trustees’ sale purchases, REOs, and short sales. When you are looking at comparable sales in the area, we would ask that you compare non-distressed sales and not use REOs and short sales in your comps, just as you would not use trustees’ sale data. We understand that non-distressed homes are the minority at the moment and that REOs and short sales make up as much as 75% of the resale market at this time. However, there are sufficient examples of non-distressed sales in the area to paint an accurate picture of comparable value.

According to Larry Murphy (of Las Vegas Crystal Ball and SalesTraq) certain types of homes are currently selling for certain dollar amounts per square foot in the Las Vegas marketplace. As of June 2011, Murphy released figures based on his exhaustive database of recent sales that shows that trustees’ sale homes are currently selling for around $65 per square foot, bank owned foreclosures (REO’s) for about $71 per square foot, short sales for around $80 per square foot, non-distressed properties at $88 per square foot, and new construction at $100 per square foot.

We appreciate your efforts to use the right types of homes in your market research during this challenging period in the real estate market.
Glenn Plantone
Wynn Realty
(702) 656-3264
gsplantone@gmail.com

www.glennplantone.com

If you’d like to see more of Glenn’s articles, follow his blog at:
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Double Dip? Probably, But That Shouldn’t Scare Real Estate Investors Away

As a full time real estate investor, with a portfolio of over 20 properties in several states, as well as a licensed Realtor, I have made my living by following the trends and helping my investor clients to do the same. For the last four years, those trends have kept me here in Las Vegas, NV...the foreclosure capital of the United States. I have risen to become the 4th busiest buyers’ agent in all of Las Vegas for two of the last three quarters, selling almost exclusively to investors who have come rely on my advice and ability to find strong, cash-flowing, turn-key investment properties for them.

Many of my clients have been asking me if Las Vegas home prices are heading for a “double dip” as the recession continues to drag on. I don’t know if I would call it a “double dip” since I definitely don’t predict that home prices will experience any further drastic declines in the Las Vegas market. I do, however, believe that home prices will continue to trickle downward until the economy as a whole begins to really improve.

So, in light of this prediction, what advice am I giving investors now? BUY, BUY, BUY! I can’t say it strongly enough that now is the time to buy investment property in Las Vegas. Why? Three major factors:

1. After losing between 50% and 70% of their peak value, average property values in Las Vegas have continued to decline over the last year at the rate of approximately 1% per month. To put this number in perspective, it means that a home that was worth $115,000 in May of this year will have been lowered in value to about $112,000 as of today. These decreases might scare away the average investor, but it is important to note that the key factor when decided where to invest should be CASH FLOW. If a property has a strong rate of annual return at the price you are currently purchasing it, then it can be a very good investment even if prices dip slightly over time before they inevitably recover. Because home prices have plummeted much lower than rents over the last several years (home prices falling around 70% and rents only 15%), cash flow in Las Vegas is stronger than we have seen it in the last five decades. We are currently achieving 8-10% CAP rates for our cash buyers and over 15% for our financed buyers.

2. Interest rates are currently at lows that we are unlikely to see again in our lifetimes. Once the economy begins to recover, interest rates will be the first things to change...and quickly. Interest rate hikes usually precede the general public’s notion that a recession has ended. Purchasing property now with a low interest rate will save the savvy investor thousands of dollars in the long run over trying to pick the exact bottom of the real estate market.

3. Lastly, demand for properties in Las Vegas is even higher than statistics may indicate. June of 2011 saw over 5500 single family homes close in the Las Vegas market, but many more untold numbers of buyers would have purchased a home if not for the continued difficulty in obtaining financing, difficulties getting appraisals that match sales prices, trouble finding homes to purchase that haven’t already been snatched up by cash buyers, etc. When credit availability improves, appraisals rise to reasonable levels and distressed properties take up a smaller portion of available inventory, we will likely see an influx of buyers that have been trying to purchase homes but have not yet been able to do so...this influx will inevitably drive prices up.

Many potential investors are understandably nervous about the rocky ride we have been experiencing in real estate over the last several years. I encourage you, however, to take a good look at the facts. Now is a great time to invest in real estate...probably the best time to invest since the Great Depression. Savvy investors...make your move.

If you are interested in purchasing Las Vegas investment properties or learning more about the Las Vegas real estate market, please contact Glenn Plantone.