About four months ago, she spoke with a seller of a home who was asking $850,000. The home had been on the market for more than six months and eventually went to “For Sale by Owner.”

“I thought his problem was that he was about $50,000 over the market, but he assured me that he had an appraisal on the property for $1.2 million and wasn’t dropping his price,” Averett said.

“He never did sell it. The property is currently rented out.”

Appraisals become dicey in markets such as Las Vegas where prices rose by 40 percent to 50 percent for a couple of years, but are now starting to drop.

With a record inventory of 20,815 homes on the market, median existing home prices slipped to $286,500 in August, down from $289,000 the previous month, Las Vegas-based research firm SalesTraq reported.

The median price of a new home fell to $329,897 in August from $337,272 in July. SalesTraq President Larry Murphy said new prices are being propped up by $20,000 to $40,000 in incentives and upgrades offered by home builders.

Those incentives must be factored into the true value of a house, appraiser James said.

“According to Fannie Mae, you have to deduct dollar-for-dollar concessions,” he said. “All the guidelines say that all appraisals are a reflection of actual cash value, the cash that goes in the seller’s pocket. If it’s a $100,000 home and he gives $10,000 in concessions, the value of the house is $90,000.”

James said the market could not support double-digit appreciation because salaries aren’t going up at the same rate.

“A dramatic run-up in prices, when incomes are flat, supply is sufficient, consumer credit is overextended, the cost of living rises constantly and prosperity lies in the hands of the elite can only be attributed to one primary cause — inflated appraisals,” former appraiser Stephen Bishop wrote in an article sent to housingdoom.com “If an appraiser doesn’t hit the number, they don’t work. The fundamental relationship between an appraiser and those who employ them guarantee it.”

The appraisal problem isn’t as prevalent with large financial institutions such as Washington Mutual, U.S. Bank or Wells Fargo, James said. It’s primarily when you get into the secondary market where small mortgage brokers get involved.

“They make their money off of points, passing the loans on to major lenders,” he said. “They’re the ones pushing it. That’s how they make their existence.”

Mitch Ohlbaum, principal of Legend Mortgage in Los Angeles, said mortgage brokers aren’t the only “pushing” force. On the refinance side, homeowners are pushing to get that equity line and make the deal work, he said.

“On the purchase side, you have Realtors pushing because their business is down and they’re starving. There (are) 500,000 starving Realtors in California,” Ohlbaum said.

Glenn Goodman has had his Las Vegas home on the market since March and eventually lowered the price to $379,000 from $430,000. Interesting, he said, that he now has in his possession an offer for the home at $460,000.

“The buyer wants us to give her $57,000 cash at the close of escrow. Obviously this buyer will then just walk away from the house, leaving it to be foreclosed upon,” Goodman said. “It smells like fraud all over it. The Realtor’s got to be in on it.”

Roughly 75 percent of all home loan business is written by independent mortgage brokers who hire their own appraisers, Ohlbaum said. He’s seeing lenders such as E-Trade, Countrywide and Bank of America doing more appraisal reviews and requiring second appraisals.

“It’s incumbent on the lenders to protect themselves. You can’t really trust someone that a third party is hiring. You need to be careful,” he said.

Banks used to have a “preferred” list of appraisers. Now they have a “bad” list, but they don’t publish it. “You have to call and ask if he’s on this list. Of course, if you have to call, he’s probably not OK,” Ohlbaum said.