Real estate appraisers in 2009 have been struggling with trying to analyze real estate markets that are basically one sided, they simply lack any sort of demand.  Like the failure of Economists to explain the reason for the financial collapse, appraisers generally fail when attempting to express "market value" opinions, because as a matter of fact, real estate "markets" do not really exists for some property types in some areas.

Single-family residential properties have continued to have a market.  In my part of the country (Las Vegas) it consists of 85% or more foreclosed properties or short-sales, but appraisers can work with auction, short-sale and foreclosure data to form market value opinions.  With commercial properties and vacant land, however, the data becomes evaporative.  There are areas in Las Vegas that have seen zero sales in the first two Quarters of 2009! 

Behind the lack of real estate demand is the lack of individual and business collateral that "hinders the ability of business (or buyers) to raise funds and pursue investment opportunities." (1)  The poor lending practices of the past, which have led to an ever increasing percentage of defaults and foreclosures is also part of the problem. 

On the supply side of many real estate markets individual properties are suffering from increasing vacancy rates, falling rental incomes and the actions of financial institution dumping foreclosed (REO) properties on the market.  What many may find surprising is the fact that the listing inventory balloon is full of properties with asking prices equivalent to 2007 and 2008 sales prices.  Buyer "bargains" are out there if you want to fight for them, but they are not as pervasive as one might imagine.  Individuals and businesses who can hold their real estate assets are hanging on to them, with hope for a turnaround.

Buyers of appraisal services have become fixated on time adjustments, as if using the right multiplier will tell them what the market value of a property is today.  If you are appraising vacant land in an area where the only activity is foreclosures, it is tough to express a "market value" opinion.  Some appraisers have taken to forecasting that things will change and they "select" an Economist who has made a prediction about the turnaround, then they assume no appreciation up until that date and then discount back from the future to concluded a present value.  As far as I am concerned it's smoke and mirrors, because you still don't have a market today, so is a discounted futue value really the market value?  Not if you read and understand the definition of market value.

So what are appraisers to do?  I think that it is important to disclose to potential clients who are asking for property value opinions in areas where no demand currently exists that a modification of the market value definition may be appropriate.  You may want to at least suggest that a hypthetical condition should be employed that considers an "orderly market."  I have seen a number of reports where the appraiser has simply extended the exposure / marketing time out to 36 months.  Looking back into past markets and extrapolating forward isn't really a great way of dealing with the problem either.  For now the answer is to provide the best possible opinions based on what is at times some very poor evidence.  Not exactly what appraisers want to hear, but if you have a better answer, let me know.