How Accurate Are Local Home Sale Prices?

As you search for a home online, one of the more important statistics you’ll encounter are prices for homes that have sold recently in the area you want to live in. This is the best way to get a feel for the local market. In fact, identifying recent sales prices of “comparable” homes is basically how appraisers determine values.

How Sales Prices Work

Sales prices, sometime called closed sale prices, differ significantly from list prices, which basically represent only what the seller is asking for the house. Nor are they pending sales process or contract prices, which are the amounts sellers and buyers initially agree to but often change before closing.

Sales prices for individual homes that you see on real estate web sites come from brokers who report prices to their local multiple listing services rather than waiting for prices to be posted publicly at courthouses, a process than can take months.

But How Accurate Are They?

A new study has found that the prices consumers see on web sites were wrong an average of 8.75 percent of the time—in most cases higher than they should have been. The economists who conducted the study looked at 400 transactions in a Southeastern state from 2004 to 2008.

They compared prices from MLSs with the official prices and found that errors weren’t spread evenly over the time period but doubled in one year to more than 15 percent of transactions in 2006, when prices peaked and began to fall in the housing crash, followed by nearly as many errors in 2007 and 2008, when the crash accelerated. One example was 22 percent higher than the actual sales price.

How Do Errors Happen?

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

From the evidence, the authors of the study 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.

“I don’t think agents were deliberately misstating prices, though that’s a story that fits the facts,” said Dr. Kenneth M. Lusht, one of the study’s three authors, in an interview. Lusht is Distinguished Professor of Real Estate at Florida Gulf Coast University.

“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.”

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.”

 The Bottom Line

More research is needed to confirm whether a real problem might exist and to measure its scope. Moreover, few markets today are falling at rates close to those of the period covered by the study, so at most errors are less frequent and less severe than those in the study.

However, in the meantime consumers relying upon sales data originating from multiple listings services should see if they can find other sources for sales that they are relying upon to set a sales price, price an offer or negotiate and final price.

source: totalmortgage.com

How to Tell if Your Local Real Estate Market Is Healthy

At its simplest level, real estate economics is a matter of supply and demand. Too few houses for sale to meet demand and prices rise. Conversely, if the local for sale inventory exceeds demand, prices will fall.

If supply and demand are in balance, though, prices will stabilize and homes will sell at prices closer to their true values without the unhealthy side effects of an unbalanced market—bidding wars and prices so high that they shut out first-time buyers or so low that they suck away equity from homeowners.

During the current recovery, rapidly rising prices have created bubble-like conditions, threatening some Western markets and raising the specter of the crash that contributed to the default of more than 5 million families.

Markets can change quickly, but it is not hard to tell when supply and demand are so out of balance that they create abnormal changes in the market that make it difficult for buyer or sellers.

Here some ways to assess a market’s health.

Rapidly rising or falling prices.

These are the symptoms that the market is out of balance and is causing damage to either sellers, buyers, or move-up buyers. Generally, an annual increase of 5 percent is a very healthy rate of appreciation.

Prices above that level and prices that are depreciating on annual basis suggest that they market is out of balance. Over the past three years, national average price has risen about 20 percent, according to CoreLogic.

Months’ supply.

Housing economists track the balance between supply and demand with metric known as “months’ supply.” It presents how many months it would take to use up the current supply of homes at the current rate of demand.  It takes into account current inventory, rate of replacement and the rate of disappearance. A six-month supply is considered healthy.

Time on market or days on market. 

This metric is simply the median time that homes are selling in a market. For a specific listing, it’s the number of days a listing is active in a multiple listing service before a buyer makes an offer that the seller accepts.

It is less accurate than months’ supply because MLSs reset the clock tracking time on market if the property is delisted and then listed again, often by another broker. “Time on site” a similar measure, also can be confusing since it measures only the days a listing has been on an aggregator site like Zillow or Realtor.com. It might have been listed on its MLS for s longer period of time than on an aggregator site.

When days on market exceed 90 days, it’s a good sign that either there is something wrong with the property or it is priced too high for the market.

List-to-sale, sale-to-list, or list-to-close ratio.

This is a sales metric used by real estate professionals to measure whether homes are selling more or less than the asking price in the local market. To calculate the metric, divide the actual sale price by the property’s final list price and express the result as a percentage. It can also be calculated using recent sales prices in a market.

Buyers, sellers and real estate agents can use the ratio to determine a strategy for price negotiation. A ratio above 100 percent means that it is a strong sellers’ market and homes are selling for more than their list price, suggesting mufti bid situations. If a home’s ratio is below 100 percent, the property may have had serious repair issues or was overpriced initially. When the ratio is below 100 percent on a market-wide basis, it suggests demand is soft and still softening, forcing owners to lower their prices after they listed their homes.

The bottom line? There are plenty of ways to get a feel for the housing market in your area as long as you’re willing to do a little research.

source: totalmortgage.com

The Anatomy of a Property Listing

Have you ever wondered where the information that makes up online property listings comes from? Or maybe how you know that information is current or accurate? Or even if there’s a place to see a new listing before other buyers?

Well, it all ties back to something called an MLS.

The rise of the MLS

The content, format, and filing of listings are governed by multiple listing services, the more than 700 local organizations created to match sellers with buyers. MLSs were around long before the Internet, but the migration of real estate listings online suddenly gave them value as content.

The biggest web sites attract millions of unique visitors a month. The most attractive and most current listings attract not only home buyers but online peeping Toms, or “lookie loos,” who aren’t interested in buying a house but like to check out the interiors of their neighbors’ homes and ogle the digs of the rich and famous.

The Internet has greatly changed real estate, but the dominant role of MLSs remains intact. They are the foundational databases that all other real estate sites rely upon for content, from the big national sites like Realtor.com and Zillow to sites hosted by local brokers and agents.

In order to get your home listed on your local MLS, you must work with a broker who is a member. Today, in most markets, if you want to market your home yourself, you can get your home listed by a broker who charges only flat fee rather than a commission.

Listings as an art form
Writing listings is a fine art. The objective is to tell prospective buyers just enough to get then interested in touring the property but not so much as to disqualify it. Many times, prospective buyers will end up purchasing a property quite different from what they have in mind.

A good listing needs to draw them in enough to take a look at the property even if its size, price or location may not conform to what the buyer has in mind.

Listings are produced by the real estate agent representing the seller using a template designed to create content that complies with local MLS rules. The template includes the basics: beds/baths, square footage, lot size, age, utilities and appliances, school district, and more. A mini industry provides brokers with professional photos, “virtual tours” (still photos with a voiceover and music), and videos, which usually do a better job selling a house than words alone.

Obviously, you will see only the home’s features on the listing—not the next door neighbor’s messy back yard or the highway under construction across the street.

Timing listings

A particularly important piece of data is “time on site,” which is different than “days or time on market.” The former refers only to the days that have elapsed since the listing was posted on a particular site. It may—or may not—have been listed on the local MLS for a much longer.

Knowing how long a property has been listed is particularly valuable information. If it hasn’t sold in more than 90 days, that suggests the property might be overpriced for the market. The longer a property has been on the market, the more careful a buyer should be–but the stronger your bargaining position will be as well.

Most multiple listing services require that members release new listings to the service within a short time frame of obtaining the listing, usually 48 hours after signing up a seller. But before that, the brokerage may list the property on its own site, giving its customers a head start.

Getting the jump on other buyers

If you know where you want to buy, it’s a good idea to bookmark local brokers and check out new offerings on a daily basis. In recent years, a new tactic to let buyers know that a new listing is in the works before the home is ready to be shown called “coming soon” builds advance buyer interest in a property.

“Coming soon” is not a new idea. Real estate agents have been sticking “coming soon” signs in the front yards of their clients for decades, especially during sellers’ markets. Now on leading sites you’ll see complete listings marked “coming soon” to premarket homes up to 30 days before they are available to be toured or to accept an offer.

Targeting listings to reach buyers

Once on the MLS, listings can go many places, with the consent of the listing broker. First, the broker and agent listing the property have first shot at posting the listing, then the local MLS will make it available to other brokers and agents.

A number of MLSs have their own consumer-facing sites. MLSs also have agreements with the big national web sites like Zillow and Realtor.com to provide their listings directly from the database. Syndicators like ListHub work directly with brokers to place their listings on sites as diverse as newspapers, magazines, real estate franchises, and regional brokers beyond their local MLS. Brokers get feedback and can tailor their outreach to fit their marketing plan.

Online MLS listings are remarkably timely. MLSs on the large national sites are updated as frequently as every 15 minutes with new listings, sold listings and price changes. Web sites with properties that are not listed on an MLS, like “for sale by owner” listings or “pocket listings”, may not be as current.

Nowhere else in the world can you see so many properties for sale, displayed accurately and attractively. The Internet has truly put America’s real estate for sale inventory at the fingertips of buyers, making it possible for them to monitor virtually all the possibilities within a neighborhood and price range. Sellers now can reach not only a buyer in the same community, but also a relocating family across the nation or an investor actor the globe.

source: totalmortgage.com