Mining for Data - Part 3

Reporting the market characteristics of a neighborhood is not always an easy matter. There are some states which are non-disclosure states; the actual sales price of a property does not become a public record. Ohio requires disclosure of the final sales price, partly because the counties levy transfer taxes based on the amount of the transaction. To fail to record the actual sales price of a property is a matter of tax fraud, and thus the sales price for any non-exempt transaction is readily available in the public records. There are many exempt transactions, such as some foreclosure sales, which may not show a recorded sales price. It is because of those cases that multiple sources of data are handy.

For the Realtor (and every appraiser should belong to his local Board of Realtors simply to gain access to the MLS), the MLS is the primary source of sales data. It is probably the only reliable source of listing data as well. The MLS has come a long way from the days of paper books and stats charts compiled once a month; today, the appraiser can specifically define a search for a type of property, refine the search, and create meaningful statistical interpretations of the market over varying time periods.

Within the CRIS MLS system used in the Akron area, neighborhood searches can be performed by either specifying the subject's MLS market area, by specifying a radius around the subject, or by a "rubber band" map search using up to ten way-points. I prefer the latter, because the agents, who are responsible for the data being input into the system, sometimes deliberately put the property into an adjacent market area which has slightly better appeal. It is not uncommon, for example, to find homes located in the East Akron (East) area listed as being in Ellet, because they are in the area served by Ellet High School. The "rubber band" search uses GIS information from the public records, and if the neighborhood boundaries have been properly defined to include homes with the most similar age, size, design, and location characteristics, those properties will be included regardless which MLS area the agent indicated.

As an example, let us say that our subject is located on Noble Avenue, north of Copley Road, in what has been designated as the West Akron (South) MLS Area (Area 21). Area 21 is bounded generally on the north by Frank Boulevard, east by West Exchange Street, south by Copley Road, and west by Copley Township. The subject is in a submarket that can be described as primarily average quality two story homes built between WWI and WWII, in the region east of Storer Avenue and south of Amelia Avenue. To be sure, there are some newer Capes and ranches, and some older (and higher construction quality) two story homes in that area, but the predominant housing stock was built in the Roaring 20's (my grandfather built such a home on Noble Avenue).

It just turns out that the submarket described above includes all of Census Tract 5065 and most of Blocks 4 and 5 of Census Tract 5064 (the homes on Amelia and northward are of generally better quality and more like the homes east of Exchange Street in Blocks 1-3 of CT 5064, part of the Northwest Akron MLS area, Area 23). It is a neighborhood marked by a relatively high number of investor-owned, tenant occupied dwellings, and also has had a relatively high percentage of foreclosure and REO sales in the past several years. On the positive side, the city has invested heavily in upgrading the infrastructure in an attempt to increase the overall appeal of the area.

When a "rubber band" search of this region is done, all of the sales in a given time period will fall into the net, and using the different MLS reporting options, the sales data can be sorted so as to include all sales, or to exclude sales which obviously have not occurred at arm's length because they were REO. From there, a statistical report can be generated which will provide the number of sales, the average market time for the final listing period, the low, high, mean, and median sales prices, and a means of determining the predominant sales price range. The sales of homes which were obviously owner-occupied can be identified and studied. Armed with such data, the appraiser now has one way of supporting his statements about the market characteristics of the subject neighborhood.

You can bet your little red booties that the average appraiser has not gone to this trouble, because it is time-intensive, because the typical client doesn't care unless there happens to be a problem with default down the road, and because the results most likely would not make an underwriter comfortable when dealing with a refinance transaction where the opinion of value was high enough to meet the ratios but also high enough to warrant a detailed explanation as to why the appraiser thought the subject was an obvious overimprovement for its neighborhood. In the end the borrowers suffer, the lenders suffer, the neighborhood suffers, and the credibility of the appraisal profession suffers.