Are some realty agents hyping the pricing information on closed sales they report to their local multiple listing services? And if so, should you care?
A first-of-its-kind study by appraisal and real estate experts suggests that maybe you should. Researchers compared closing documents — which are supposed to indicate the final price in sales transactions — with the prices that agents actually reported to their local multiple listing service and found that nearly one of every 11 cases (8.75 percent) had discrepancies. Overstatements of final price exceeded understatements by a ratio of nearly three to one. In one case, the price reported to the multiple listing service was 21.4 percent above the actual closing price.
The study, published in the latest issue of the Appraisal Journal, is unusual because settlement statements (traditionally the “HUD-1” form, now the “Closing Document”) are not public. The researchers, three professors at Florida Gulf State University, obtained the HUD-1 statements from two banks that had extended mortgages on the properties. They then matched them up with the prices reported by realty agents to the local multiple listing service. A total of 115 listing agents or brokers made the reports on the 400 sales in the statistical sample.
8.75 percentof prices reported to multiple listing services in study found to have discrepancies
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One of the co-authors, Kenneth M. Lusht, a past president of the American Real Estate and Urban Economics Association, told me that some of the errors could simply be clerical mistakes — “typing errors” — but others could be the result of agents “purposely inflating” the prices they reported.
Though the average overstatement was not huge, 6.7 percent, the authors expressed concern that because the home appraisal system depends on accurate price reporting to multiple listing services, errors can distort appraisers’ valuations. Appraisers use multiple listing services pricing data to identify “comparable” houses to help estimate the values of homes for sale.
Accurate appraisals are important to home buyers because lenders use them to help decide whether to approve their applications. Inaccurate appraisals also pose potential risks for lenders — if values are overstated, they may have less true “collateral” backing the mortgages they make, as they found to their horror during the housing bust of the last decade.
Multiple listing services exist to share property data among real estate professionals. The Council of Multiple Listing Services reports there are more than 800 such listing services, typically with rules emphasizing “data integrity.” Individual agents are supposed to report pricing and other property information to the multiple listing services so that it can be viewed and used by other members.
Realty brokers, agents, appraisers and listing officials I spoke with last week had starkly different interpretations of the study results. Several brokers and agents said they observe inaccuracies in pricing reports to their multiple listing service frequently or occasionally. Several appraisers agreed. Others said they encounter few or none.
Many agents aim to show a higher closed sale price to show that their list-versus-sold percentage is higher (and) they will use this in their listing pitch to show how great they are.
Joshua Hunt, CEO, Trelora
Joshua Hunt, founder and CEO of Trelora, a Denver realty brokerage, said “many agents aim to show a higher closed sale price to show that their list-versus-sold percentage is higher (and) they will use this in their listing pitch to show how great they are.” They do this, Hunt said, by omitting seller concessions — adjustments to the final price that reflect either repairs or closing costs the seller has agreed to fund — from the price they report to the multiple listing service. The listing service doesn’t pick up these intentional misreportings, he said, because “there really is no audit system in place” to spot them.
Alexis Eldorrado, managing broker at Eldorrado Chicago Real Estate, says this “is not common in Chicago,” mainly because the local multiple listing service has “an anonymous violation reporting system” that allows agents who observe misreporting of final prices to flag them for disciplinary action if not quickly corrected.
Kathy Condon, president of the Council of MLSs and CEO of Massachusetts’ largest multiple listing service, agreed. In an interview, she said “most MLSs do self-policing” rigorously to guard against inaccurate data. At her multiple listing services, five staffers monitor reports and search for errors.
Bottom line: The jury is out on this one. Maybe the pricing errors found in the study sample were not typical. But maybe errors are more common than multiple listing services care to admit. As one Virginia appraiser told me, “we find inaccuracies quite often and have to verify information (on prices, square footage, etc.) before we use it.” He said he has seen pricing inaccuracies more than two dozen times in the past year alone.
Kenneth Harney is executive director of the National Real Estate Development Center.