Sat, Nov 10, 2007 (7:39 a.m.)

With the real estate market sagging, the Bureau of Land Management says it might sell federal land at lower prices - a policy change that could lead to cheaper housing in Southern Nevada.

The BLM says its auctions are failing because developers are no longer willing to pay the parcels' appraised values, which the BLM uses as the minimum bidding price.

At issue is how the BLM can better determine the true value of land - which, in today's market, is typically less than its appraised value.

The discussion is triggered by increasingly disappointing auction results.

On Nov. 1, only one of 31 BLM parcels sold at auction, the worst results this decade by BLM standards.

The auction placed 167.5 acres up for grabs in Henderson, the southwestern Las Vegas Valley and other areas.

Only the sale of a single 15-acre site kept the auction from being a shutout.

Juan Palma, BLM's Las Vegas field manager, said it would take a change in BLM policy to sell land below appraised value, and he's not yet suggesting that. But it's worth studying, he said.

The Southern Nevada Public Lands Management Act, approved by Congress in 1998, requires that federal land be sold for fair market value, and subsequent regulations defined fair market value as the appraised value.

Palma said that at its next auction, tentatively scheduled for April, the BLM might allow bidding to start below the appraised value, but that land would still have to fetch at least the appraised value.

That bidding process, however, would give insight into the level of interest in federal land and what its current market value is.

That could ultimately lead to changes that would allow property to be sold for less than appraised value, he said.

Palma said with a slowdown in the housing market and softened demand for land in the Las Vegas Valley, the appraisals lag behind the market and tend to look at what the land was once worth.

The rule preventing the sale of land below its appraised value is intended to ensure that the American public isn't ripped off and there are no sweetheart deals, Palma explained. But he noted that with the housing slump and the appraisals' failure to capture declining values, auctioned land is priced to the point where there are no bidders.

"When the market is in an upswing, the appraisal system works, but when the market is now going down, the appraisal system doesn't work," he said.

Palma said he would have to see the results of the more relaxed bidding process before he advocates any changes to how BLM land is sold. Some have argued that BLM never knows the true market price, he said.

"We don't have to sell, but we can at least get a sense of what the market can bear," Palma said. "The concept is what you see on eBay and you have a reserve. If the reserve is not met, you don't sell it."

BLM representatives met with Las Vegas Valley elected officials Monday to discuss nominations for a November 2008 land auction and Palma broached the subject of changing the auction process.

He said he will consult with BLM attorneys and continue discussions with elected officials.

The parcels auctioned are nominated by local governments based on public interest and agreed to by BLM.

Craig Cherney, director of Western operations of the Philadelphia-based American Land Fund, a private equity and land acquisition group, isn't surprised that parcels didn't sell at the auction in a market in which prices continue to decline.

"There is no demand, and basically it is a supply and demand problem," Cherney said. "There is overhang in the private real estate market and until that is burned through, there is going to be little demand from public and private homebuilders."

Cherney said he doesn't believe going to a process of accepting bids lower than appraised value while setting a reserve price will generate more interest. If the buyers know they have to meet a reserve price, they are not likely to take half a day to bid on properties they know they won't buy.

What would work, Cherney said, is an auction that starts at appraised value and ratchets down in increments to a point at which bids are made. The price could go up from there, he said.

A version of this story appears in In Business Las Vegas, a sister publication.

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