Thursday, September 2, 2010

Painting the Real Estate Tape: Bogus Housing Sales Prices

A report is circulating that some housing sales are being recorded at much higher prices than the true sales prices. The report has the smell of truth.

Zero Hedge reports:
A reader writes in with some troubling observations on what could potentially be a pretty substantial scheme to artificially "boost" existing home prices by up to 40%, putting all the NAR data, and all other relevant public housing data materially into question. Since trick is painfully simplistic, and all too easy to spot, we wish to open it up to our readers for verification, as this could be a huge hit to the credibility of all existing home price metrics, and put into question all transitory upticks in home prices, such as the backward looking Case-Shiller index indicated yesterday.

From the email:

Realtors are not reporting the true sold prices on homes. Here are 2 examples. If a home is listed on the MLS and then sells at a auction like Hudson & Marshal or RealtyBid, you can see the sold price online or if you attend the live auctions, see the house sell at open outcry auction. The next day the houses are reported sold on the MLS but always at full price.

The example below sold for $115,000 at Realtybid but is listed as sold for $159,500 on the MLS.

Also, homes are listed on the MLS and sold on the HUD site. You can see the sold area on HUD and the Bid Stats. The house listed below sold on the Hud site for $90,061 but again was listed as sold for full price on the MLS $113,400.

These are only 2 examples, I have seen over 100 and assume it is occurring everywhere. I understand that foreclosures are not included in the sales stats from the Realtor Assoc. but the stats they use are taken from the sold prices listed on the MLS. They are all false.

Simply said, this means that any pricing data coming off Multiple Listing Services is fatally flawed, and if this observation is verified, could potentially be a simplistic means to misrepresent the true home price by up to 40% higher.

We have a simple question: which price is the NAR, Case-Shiler, and every other resi real estate index service pulling: the higher or the lower. For the ongoing credibility of the suddenly green shoot free recoveryless recovery, we at least hope it is the correct one. Which is why we ask readers to advise us of any comparable bifurcations between paid and listed price on properties they may be aware of.

Suddenly David Rosenberg's claim that no properties over $750,000 sold in the past month doesn't seem all that outlandish...
Lew Rockwell emails a link to a report from Market Ticker. It appears that Market Ticker received the same email and he did some digging which shows that in the one case he reviwed the reported sale price was much higher than the actual sales price:

I have a very disturbing email that came in this evening.

It alleges out-and-out fraudulent reporting of home sales in one of the regional MLS systems.

That is, prices paid that are in fact much lower than the "sold" prices reported in the MLS.

The person in question claims to have seen over 100 of these in his area. I have copies of two, and it appears, from the evidence that I have, that at least for those two the claim is accurate.

One in particular I was able to pull the auction data on. It "sold" under reserve, is listed as sold in the MLS at ~25% higher than the "sold" bid, and the premium is disclosed as 5%. This property also has a 90-day "anti-flip" provision on it, implying that the paper may be held by one of the GSEs. (It's a nice-looking place, incidentally.)

Here's the problem, obviously - Case-Schiller and other "home statistics" numbers related to price paid are all computed off these numbers provided by the local Realty boards (via NAR.) If the data in the MLS is bogus then so is the so-called "median sales price" and so are Case-Schiller's numbers!

These are not small discrepancies either - in both cases the "over-reporting" is by approximately 25%!

Both subject properties sent to me were auctions.

I am going to dig into this - if this can be verified and is happening nationally the claims of recent price stabilization are utter crap, and the first obvious question that arises is "how far back does this go?"

It also raises a key question when it comes to BPOs, not only from a standpoint of bank valuations (e.g. "drive-bys") but additionally if you're buying a house and your agent is showing you comparable sales predicated on faulty MLS data you are going to be induced to RADICALLY overpay.

For the time being I would verify any claimed "sold" prices with the county recorder before believing any alleged "sold" prices you're being fed as comparables.

This might be an anomaly, an "isolated incident", or it may not be what it appears to be, but with a 25% disparity we're not talking small potatoes if this is accurate.

I'll post follow-up Tickers on this as I learn more.....
There's a lot of incentive for the government, banks and real estate agents to present the housing market as in much better shape than it actually is. It's not clear how why spread this false reporting is, but any bottom fishers should realize that the bottom might be a lot lower than the comp prices your real estate agent is showing you and a lot lower than indexes such as the Case-Schiller Index indicate.

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