Statistics: Two Principles to Follow
Knowing how the market is trending is important in making astute decisions whether one is a buyer or a seller. For instance, if prices are trending upward, a buyer may decide to accelerate the purchase, while a potential seller may decide to delay.
With the proliferation of real estate statistics on the Internet, the "noise" level is increasing making it more difficult to know which statistics are important and which are irrelevant.
In this month's report, we are going to start a primer on real estate statistics to help you separate the wheat from the chaff. The first two principles of real estate statistics are:
1. Know the source of the raw data used, and
2. Understand the methodology used to crunch the
raw data. There are only two accurate sources of raw data, each of which has its pluses and minuses. The first is data from the county assessors' offices. The main plus of this data, used by companies such as DataQuick and often cited by local newspapers, is that every transfer of real property is required by
law to be recorded with the county assessor. This is the most accurate data available.
The minuses of county assessor data begins with the ability of buyers to ask the assessor not to reveal the sales price.
This is usually done only with high-priced, or high-profile transactions and only affects a minute number of sales.
The other major minus of county assessors' data is it ONLY contains sold properties. The second most accurate data comes from the local Multiple Listing Services (MLS).
The drawback of this data is it contains only those sales in which a real estate agent is involved. Normally, this would account for 85-90% of all sales. In this market, with the high number of foreclosure
auctions, which are not reported to local MLSs, the number of sales drops into the 70-80% range.
The real benefits of MLS data come in the type of data collected. The MLSs report on inventory, properties under contract to be sold, length of time it takes to sell, and the sales price to list price ratio.
This type of data is important for determining the direction of the market. Bad, or inaccurate data, is rife on the Internet. Take Altos Research for instance. They scrape the Internet for properties for sale and build their reports around that. Nowhere on their site do they say their pricing graphs only reflect listing prices NOT sold prices. Here's a quote from their FAQ: "Our system analyzes properties listed on the market for sale."
Another major source of inaccurate data is Zillow. While they do have assessors' data for sold properties, they also scrape the Internet for properties that are for sale and use an algorithm to determine market value. They have consistently over-valued my home by 25%.
Then there is Yahoo Real Estate where they don't bother with an algorithm to determine market value,
they just quote Zillow and eppraisal.com, which overvalues my home by 60%. In short, beware of the statistics you use. If the purveyor of statistics won't say where they get their data, run for the hills! Focus on those statistics that come from reputable sources.
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Susan Grant, David Lyng Real Estate, Santa Cruz to Carmel
DRE#01331769
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