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How serious are the errors in MLS sales price data? [stats]

For the first time ever, the accuracy of sales price data in the MLS has been analyzed, and the study’s authors express to us how these inaccuracies could have happened and what we must do now.

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For years, appraisers, economists, and other experts have quietly questioned the discrepancies between multiple listing services (MLS) prices the legal prices recorded on HUD-1 forms (and filed in local jurisdictions).

A new study published by the journal of the nation’s leading appraisal organization provides the first hard evidence that errors in sales prices reported by MLSs could be significant, especially when peak prices start to decline.

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Though the study’s scope was limited to one large MLS, its findings suggest that potential for similar errors in the nation’s 800 multiple listing services could have such serous impact on consumers that the three economists at Florida Gulf Coast University who conducted the study advised appraisers that are suspicious of a price to use another source for verification.

l6.25% of transactions overstated HUD1 data

Reported Price Errors: A Caveat for Appraisers” by Marcus T. Allen, PhD, Kenneth M. Lusht, PhD, MAI, SRA, and H. Shelton Weeks, PhD is published in the current issue of the Appraisal Journal.

The economists looked at 400 transactions in a Southeastern state from 2004 to 2008, including the two years prior to the peak price year of 2006 and the subsequent two years. They compared data from HUD1 forms with prices reported to their MLSs by listing brokers, usually after sales contracts were signed by before settlement.

They found that MLS-reported prices differed from HUD1 prices 8.75 percent of the time over the four-year period. Some 6.25 percent of the transactions overstated the HUD1 data and 2.50 percent understated the HUD-reported prices.

The largest overstated error was 21.44 percent of the of the HUD-reported price and the largest understated error was 1.09 percent of the HUD-reported price. The average overstated price was $14,038, or 6.69 percent of the HUD-reported prices.

Data suggests that errors were not random

Considering the size and complexity of MLS databases, an error rate of less than 9 percent of all sales over a four-year period is an issue to be addressed but not unexpected.

What rings alarm bells is the timeframe in which the errors occur.

Errors weren’t spread evenly over the time period, but doubled in 2006 to more than 15 percent of transactions, when prices peaked and began to fall in the Southeastern state, followed by nearly as many errors in 2007 and 2008, when the crash accelerated.

The timing of the errors suggested they were not random mistakes but were driven by marketplace conditions.

Are prices intentionally inflated?

From the evidence, the authors suggested two viable explanations for the market-driven error rates. The first was that some brokers intentionally inflated sold price information in the MLS, perhaps to make it appear that they negotiated a higher price for their clients.

If brokers and agents were overstating sales prices to bolster reputations seven or eight years ago, what’s happening today?

MLS sales price data is more important than ever for agents who want to “prove” their value to customers. The emergence of ratings services that use MLS sales data to rate agents and brokerages increases the pressure on brokers and agents to quantify their value to their customers and clients. Some rating services use public sales data to assess sales prices, others use MLS sales data and others allow agents to enter their own. MLS sales data also gives brokers a way to assess the value of agents in their local markets.

What could have caused the misstated prices

“I don’t think agents were deliberately misstating prices, though that’s a story that fits the facts,” Dr. Kenneth M. Lusht, one of the study’s three authors, tells us. Lusht is a Distinguished Professor of Real Estate at Florida Gulf Coast University, past president of the American Real Estate and Urban Economics Association, and a past trustee of the Appraisal Foundation.

“The second thing that could have happened, and it’s pretty likely, is that when you’ve got a down market, buyers get cold feet. They start thinking about not going through with the sale and giving up their deposit. So another story that’s consistent with what we found is that the price the broker submitted was the agreed upon price but between that the time he submitted it to the MLS and the settlement day the price was changed and the broker never changed the data because there is no incentive to do so.”

Lusht added that conveyances can add to the post-contract price. “In a down market that’s more likely to occur when a seller says, ‘Look, I’ll throw in the furniture to try to make the deal.’” Likewise, in down markets, sellers are more likely to subtract the cost of repairs rather than quibble over them at closing.

Whatever the cause of the errors, the study concluded, “Regardless of the motivation or source of the error, the result is the same – a misstated price.”

More research is now necessary

The authors admit that the study’s small size limits the generality of its conclusions. The geography and time frame might also be an issue. Prices in the Southeastern markets they studied were some the most volatile in the nation during the four years of the study – it was the height of Florida’s foreclosure crisis. Only one MLS was involved and policies toward gathering and checking price data vary by MLS. Much has changed in the world of MLS data and appraisal standards since 2008.

However, Lusht maintains that the problem of MLS errors is longstanding and certainly not limited to one or two markets. “I would say that any appraiser who has a reasonable amount of experience already knew there were errors in the MLS. They knew that it is very possible some of the prices weren’t right. But no one has ever measured it before and found how frequent the errors were or how big they might be.”

The study is receiving a lot of interest and Lusht believes more research is warranted.

“Maybe someone else will get interested in it and look at different areas to see if what we found is typical or not. My guess is that what we found here, we will find in other markets, especially during down markets,” he said

In search of a solution

MLS price data is valuable because it is current, and available within days of settlement. But if the Florida Gulf Coast University study is right, an average or one out of every twelve sales prices is wrong, and one out of every seven during down markets.

It can take local governments as long as three months to post official sales price data.

That’s why price reports like Case-Shiller and CoreLogic that only accept public data come out as late as two and a half months after the fact. That’s a long time when you’re a home seller or buyer trying to figure out what prices are doing in your market.

There’s no doubt that long delays seriously compromise the usefulness of public data.

Currency is a major reason the use of MLS price data is widespread. Hundreds of MLSs themselves and Realtor associations at the national, state, and local levels use the data in market reports for their members and the general public.

National web sites and brokerages, from Realtor.com to Redfin and RE/MAX use MLS price data in their reports. Hundreds of thousands of agents and brokers rely on it to counsel their clients and customers.

For MLSs themselves, the sale of data, including price data, has become a significant source of income that would be even more valuable if this issue of price errors can be resolved successfully.

And now for the solution

So where’s the solution? Is there a way to make MLS data more accurate or public data more timely or both?

One possibility has been created by TRID, the new closing process that took effect last October.

Lenders are required to provide their borrowers with final costs, including final prices three days before settlement. With final numbers available earlier than ever, will brokers be able to report prices to their MLSs months before they are posted in the courthouse?

Unfortunately, this solution may not be as easy as it looks. Privacy concerns are an issue and many lenders are resisting making the new TRID forms available to agents. Discussions are underway to work out a solution.

Other parts of the solution might include:

  • Double checking broker-supplied data when public data becomes available, an expensive proposition for MLSs that corrects errors after the fact, but doesn’t really solve the problem;
  • Better education and training to encourage agents and brokers to file corrected contract prices that have changed between contract signing and settlement;
  • Clearly label contract prices as pending sales and be sure they are replaced with sold prices after settlement. This might include user-friendly software, including mobile apps, that reminds agents to file price data and makes it easy to enter data. The software could also aggregate accurate price and sales data for agents and brokers to use in their marketing efforts;
  • Conduct additional research that builds upon the Florida Gulf Coast University study to identify market conditions, geographic regions, property types, seasons of the year and other factors that correspond to increased errors; and
  • Undertake periodic analyses of errors by MLSs to identify specific brokers and agents who might account for a preponderance of errors.

#MLSerrors

Steve Cook is editor and co-publisher of Real Estate Economy Watch, which has been recognized as one of the two best real estate news sites in the nation by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, Cook was vice president of public affairs for the National Association of Realtors.

Real Estate Big Data

Is your MLS on the RESO naughty list?

(REAL ESTATE DATA) A lot has changed in the real estate industry at the MLS level, but if your MLS or Association is on the RESO naughty list, it may be time to say something so you’re not impacted negatively.

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RESO

Heaps and heaps of data

At the core of what makes up the real estate practice is sales, negotiation, marketing, and data. The last bit often eludes not only agents, but brokers, and to be frank, the industry as a whole.

We’re sitting on massive amounts of data, endless points of historical information that come together like glorious Legos to build the most beautiful giant city of castles you’ve ever seen.

But Legos aren’t exactly concrete or marble, so the industry has come together (including brokers volunteering time) to improve this mass of data we’re all sitting on, and the MLS is the first point of contact for all of this data and info. Years ago, the “Real Estate Standards Organization” (RESO) was established to organize and standardize this wealth of data.

Problem solved, right?

False, there’s still a problem

Nope. There are still an embarrassing number of multiple listing services and real estate boards that aren’t RESO certified, meaning their mountain of data could be sloppy, disorganized, useless in many cases.

There is a running naughty list of AORs/MLSs that aren’t RESO certified (see below), and if you belong to one of them, it is worth making a call to ask what their plans are to obtain certification and adhere to the industry standards so the data isn’t as weak as a 100-story Lego house.

AORs/MLSs Not RESO Data Dictionary Certified:
Altamaha Board of REALTORS®, Inc.
Bay County REALTOR® Association
Beckley Board of REALTORS®
Big Bear Assocation of Realtors
Brooklyn New York MLS (Broker-Owned Non-N.A.R. Affiliated)
Buffalo Trace MLS
Capital Region Multiple Listing Service
Central Coast Regional MLS (CCRMLS)
Columbus Georgia Board of REALTORS
Covington County Association of REALTORS
Cushing Board of REALTORS®
Dan River Region Board of REALTORS
Dublin Board of REALTORS, Inc.
Eastern Arkansas Realtors Association
Eastern Kentucky Association of Realtors
Eastern Shore Board of REALTORS
Fayette-Nicholas Board of REALTORS®
Four County Board of REALTORS®
GREENBRIER VALLEY BOARD OF REALTORS
Garden City Board of Realtors
Grand Island Board of REALTORS
Greater Hazleton Association Of Realtors
Greenville Area Board of REALTORS
Hays Board of Realtors
Heartland Assocation of Realtors Inc
Henderson County Board of REALTORS
Iron County Board of REALTORS®
Jamestown Board of REALTORS®
Kansas Association of Realtors (Kansas Statewide)
Key West Association of Realtors
Lexington-Bluegrass Assn of Realtors
Lynchburg Association of REALTORS
Martinsville, Henry & Patrick Counties Association of REALTORS
McDowell Board of REALTORS
Memphis Area Association Of Realtors® Inc
Midlands Board of Realtors
Midlands MLS Inc.
Milledgeville MLS
Mitchell Board of REALTORS®
Nebraska Realtors Outstate (NRA)
Norfolk Board Of Realtors (NRA)
Okeechobee County Board of Realtors
Otsego-Delaware Board of REALTORS
Phenix City Board of REALTORS
Pike County Board of REALTORS
Pittsburg Board of REALTORS
Plainview Association of REALTORS®
Rockingham County Association of REALTORS
Royal Palm Coast Realtor Association
Russellville Board of Realtors
Salina MLS
Sheridan County Board of REALTORS
South Central Association of REALTORS
Southeast Georgia MLS
Southeast Kansas MLS
Southern Midlands Board of REALTORS
Southern Piedmont Land & Lake Assn of Realtors
Southwest Kansas MLS
Southwest Mississippi Board of REALTORS, Inc.
Tehachapi Area Association of REALTORS
Tennessee Valley Association of REALTORS
Tulare County Association of REALTORS®
Upper Cumberland Association of REALTORS
Williston Board of REALTORS®
Wiregrass Board of REALTORS®
Yancy Mitchell County Board of Realtors North Carolina

AORs/MLSs Not RESO Web API Certified
Altamaha Board of REALTORS®, Inc.
Americus Board of REALTORS
Ann Arbor Area Board of REALTORS
Ashland Board of Realtors
Bakersfield Association of REALTORS
Bay Area Real Estate Information Services
Bay County REALTOR® Association
Beckley Board of REALTORS®
Benton County Multiple Listing Service
Big Bear Association of Realtors
Boone County Board of REALTORS
Brooklyn New York MLS (Broker-Owned Non-N.A.R. Affiliated)
Buffalo Trace MLS
California Desert Association of REALTORS
Central Oregon Association of Realtors
Central Penn Multi-List
Cincinnati Area Board of REALTORS
Clear Lake Board of REALTORS
Columbia Greene Northern Dutchess
Columbus Georgia Board of REALTORS
Covington County Association of REALTORS
Crisp Area Board of Realtors, Inc.
Cushing Board of REALTORS®
Dan River Region Board of REALTORS
Dublin Board of REALTORS, Inc.
East Central Association of REALTORS
Eastern Arkansas Realtors Association
Eastern Kentucky Association of Realtors
Eastern Shore Board of REALTORS
Emporia Board of REALTORS
Fayette-Nicholas Board of REALTORS®
Firelands Association of REALTORS
Flint Hills Board of REALTORS
Four County Board of REALTORS®
Fresno Association of REALTORS
GREENBRIER VALLEY BOARD OF REALTORS
Garden City Board of Realtors
Goodland Board of REALTORS
Grand Island Board of REALTORS
Greater Hazleton Association Of Realtors
Greater Northwest Indiana Association of REALTORS
Greater Portsmouth Area Board of Realtors
Greenville Area Board of REALTORS
Hays Board of Realtors
Heart of Iowa Board of REALTORS®, Inc.
Henderson County Board of REALTORS
High Desert Association of REALTORS
Highlands-Cashiers Multiple Listing Service, Inc.
Humboldt Assoc. of REALTORS, Inc.
Huntingdon County Board of REALTORS
Internet-Technology Pasadena-Foothill
Iowa Statewide
Iron County Board of REALTORS®
Jamestown Board of REALTORS®
Kansas Association of Realtors (Kansas Statewide)
Key West Association of Realtors
Kings County Board of REALTORS
Lexington-Bluegrass Association of REALTORS
Lubbock Asssocation of REALTORS
Lynchburg Association of REALTORS
Madisonville Hopkins County Board of REALTORS
Marshalltown Board of REALTORS
Martinsville, Henry & Patrick Counties Association of REALTORS
McDowell Board of REALTORS
McKean County Association of Realtors
Midlands Board of Realtors
Milledgeville MLS
Mitchell Board of REALTORS®
Monroe County Board of Realtors
Moultrie Board of Realtors
Nevada County Association of REALTORS
Newton Board of REALTORS
North Central Board Of Realtors – Ponca
North Central Iowa Board of REALTORS
Northwest Iowa MLS
Ojai Valley Board of REALTORS
Otsego-Delaware Board of REALTORS
Phenix City Board of REALTORS
Pike County Board of REALTORS
Pittsburg Board of REALTORS
Plainview Association of REALTORS®
Plymouth County Board of REALTORS
Poweshiek County MLS
REALTORS Association of Lincoln (Midlands MLS)
Rockingham County Association of REALTORS
Royal Palm Coast Realtor Association
Russellville Board of Realtors
Salina MLS
San Francisco Association of REALTORS
Sheridan County Board of REALTORS
Snake River Regional Multiple Listing Service
Somerset-Lake Cumberland Board of REALTORS
South Central Association of REALTORS
South Tahoe Association of REALTORS, Inc.
Southeast Georgia MLS
Southeast Iowa Regional MLS
Southeast Kansas MLS
Southern Indiana REALTORS® Association
Southern Midlands Board of REALTORS
Southern Oregon Multiple Listing Service
Southern Piedmont Land & Lake Assn of Realtors
Southwest Georgia Board of Realtors MLS
Southwest Kansas MLS
Southwest Mississippi Board of REALTORS, Inc.
Storm Lake Multiple Listing Service
Tama County Board of REALTORS
Tehachapi Area Association of REALTORS
Tennessee Valley Association of REALTORS
Tulare County Association of REALTORS
Upper Cumberland Association of REALTORS
Vail Board of REALTORS
Valdosta Board of REALTORS/South Georgia MLS
Webster City MLS
West Central Iowa Regional MLS
Western Steuben Allegany Association of Realtors, Inc.
Williston Board of REALTORS®
Wiregrass Board of REALTORS®
Yancy Mitchell County Board of Realtors North Carolina

If you didn’t know, now you know

RESO says their organization “develops, promotes and maintains, through an open process, voluntary electronic commerce standards for the real estate industry. As a standards setting organization involving the participation of competitors, RESO is committed to full compliance with all laws and regulations and to maintaining the highest ethical standards in the way it conducts its operations and activities.”

If you belong to one of the aforementioned AORs/MLSs, perhaps it is time for you to get involved and volunteer alongside the hundreds of other volunteers that keep RESO running smoothly nationwide.

#RESOnaughtylist

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Real Estate Big Data

Indeed’s list of the cities that stretch your paycheck the furthest

(BIG DATA) Indeed recently released a list of cities that show where you get the biggest bang for your buck.

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memphis

MONEY, IT’S A HIT

If you’ve ever had the misfortune of sitting down to assess your personal budget, you know the pain of debating if living costs in your area are worth it compared to your income. Generally, the cities with the highest income are also paired with higher living costs.

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San Jose, San Francisco, Washington, DC, Fairfield County, CT, and New York are America’s five metros with the highest salaries, and also some of the most expensive places to live. Is it worth getting paid more if you also end up paying more? Can’t there be some mystical region with low cost of living where you can also rake in a sizable paycheck?

INDEED’S METHODOLOGY

Luckily for those of us too lazy to use Google or math, the nice folks at Indeed drew up a list of Cities Where a Paycheck Goes the Furthest in 2017. Using salary data from August 2016 to July 2017, they calculated an average of all jobs with annual salary information for each of the 104 US metropolitan areas with at least 500,000 residents.

After adjusting for each metro’s cost of living and considering unadjusted average salaries based on fixed-effects regression model, Indeed ended up with some helpful comparisons.

WHAT THEY FOUND

Check out if your city made the list.

paycheck

HIGH AND LOW

After adjusting for cost of living, coastal metro areas with high salaries aren’t such a great deal. None of the big coastal metros ranked in the Top 20 list of affordability, but tinier metros in the South and Midwest made it. In fact the only California metros on the list are from the Pacific region, where housing is significantly less expensive than the coast.

Indeed notes, “adjusted salaries are higher outside the largest metros. Even though you’ll see more money on your paystubs in bigger metros than in smaller metros, those big-city salaries are outweighed by an even higher cost of living.” The highest adjusted salaries where your paycheck spreads the furthest are in Birmingham, AL, Jackson, MS, and Fresno, CA.

Honolulu, Hawaii topped the list for where salaries stretch the least.

Although housing costs are lower in Honolulu than San Francisco and San Jose, physical goods must be shipped to Hawaii, and their adjusted salaries are among the lowest in the country.

MOVING ON UP

So why doesn’t everyone just move to where the cities on the top 20 list? Because moving is money, and uprooting your life and job can be a huge ordeal if you have family and friends in your area. Job security is another factor to consider. Although one area may have a higher adjusted income, it could be riskier to make the move if the job market is less stable.

Indeed also points out that some places are desirable locations even if they’re not so easy on your wallet (aloha, Hawaii.) Plus, in areas high in routine jobs, the threat of automation/robot takeover is very real. Check out Indeed’s blog post for more info on their methodology and fun charts.

#GoFurther

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Real Estate Big Data

Home prices still rising, inventory still tightening, causing dip in sales

(BIG DATA) Home prices are continuing on their rising trajectory, while the amount of homes available continues to decline.

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prices catalyst housing fund sales

On the up

Although existing home sales jumped in the South and West, national numbers were weighed down (falling 1.3 percent) by the losses in the Northeast and Midwest in July, according to the National Association of Realtors (NAR).

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Home prices continue to rise, and bidding wars are breaking out in parts of America with listings in July typically going under contract in under 30 days.

Rocky start

NAR’s Chief Economist, Dr. Lawrence Yun says the second half of the year got off on a somewhat sour note as existing sales in July inched backward.

“Buyer interest in most of the country has held up strongly this summer and homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall affordability put the brakes on what should’ve been a higher sales pace,” he said.

“Contract activity has mostly trended downward since February and ultimately put a large dent on closings last month,” Dr. Yun concluded.

Not a lot to give

Inventory levels remained tight, falling another 1.0 percent in July and is now 9.0 percent lower than this time last year. This marks the 26th consecutive month of declining inventory.

Meanwhile, home prices are up for the 65th consecutive month, rising 6.2 percent in the last year to $258,300.

“Home prices are still rising above incomes and way too fast in many markets,” said Yun.

He added that “Realtors® continue to say prospective buyers are frustrated by how quickly prices are rising for the minimal selection of homes that fit buyers’ budget and wish list.”

All over the place

July existing-home sales in the Northeast dropped 14.5 percent to an annual rate of 650,000, and are now 1.5 percent below a year ago. The median price in the Northeast was $290,000, which is 4.1 percent above July 2016.

In the Midwest, existing-home sales fell 5.3 percent to an annual rate of 1.25 million in July, and are now 1.6 percent below a year ago. The median price in the Midwest was $205,400, up 5.9 percent from a year ago.

Existing-home sales in the South rose 2.2 percent to an annual rate of 2.28 million in July, and are now 3.6 percent higher than a year ago. The median price in the South was $227,700, up 6.7 percent from a year ago.

Existing-home sales in the West jumped 5.0 percent to an annual rate of 1.26 million in July, and are 5.0 percent above a year ago. The median price in the West was $373,000, up 7.6 percent from July 2016.

#HomeSales

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