How accurate is the NWMLS data?
September 1st, 2007 by Mark FlandersReal estate market data can be found on dozens (if not hundreds) of Washington real estate websites. Much of this data is garnered from the NWMLS (Northwest Multiple Listing Service) database. Local real estate agents use the information in listing presentations and they use the data to justify price reductions to sellers. Consumers use the same data to get an idea of the current market condition in 19 of Washington’s Counties. We even use the data here on SoundBiteBlog when Rich publishes his Market Reports.
It was recently brought to my attention that the Average List Price published by the NWMLS is a reflection of the last list price posted on listings in the database. I have not been able to verify this information yet. If this is indeed the case though, the numbers that local consumers and real estate professionals have been viewing are badly skewed and the data does not accurately reflect what is going on in the Western Washington housing market.
List Price/Sale Price Ratio Problem
Consider the case of a seller who insists on overpricing a property. The house sits for sale for several months with no buyers in sight. Eventually, the seller agrees to lower the price and the property sells. If the NWMLS is only using the last list price, isn’t the List Price/Sale Price Ratio artificially high?
This can create a mis-perception in the minds of sellers, buyers, real estate agents and appraisers. Sellers may believe the market is fetching close to list price and they should “hold strong” on their price. Buyers may believe they can’t ask for a discount because homes are selling for close to list price, thereby potentially paying too much. Real estate agents may believe they are counceling their clients properly when in reality the data used to prove a point is flawed. And appraisers may get a terribly flawed view of market conditions.
A Quick Example (not based on a real transaction)
Day 1 – Original List Price – $350,000
Day 60 – Price Reduction – $335,000
Day 90 – Final Sale Price – $330,000
The List Price/Sale Price Ratio is 94% (based on the original listing). But if only the last listed price is used, this would be computed as a List Price/Sale Price Ration of 98.5%!
A Question of Semantics?
I understand an argument can be made supporting the use of the last listed price. It was a legitimate list price at one time in history so it is accurate in a way. It just seems to me the last listed price does not reflect clearly what is truly happening in this market. I am hoping to get feedback from readers on both sides of this issue. If you support the use of Last List Price, feel free to speak up, I can be convinced to change my view. If like me, you believe it skews the data, let us know. It would help tremendously to get a response from somebody at the NWMLS.
My concern is not so much that the last list price is not a valid number. My concern is that consumers and real estate professional do not realize that the last list price is the list price being used in NWMLS reports.
A Tempest in a Teapot?
As I stated in the second paragraph, I have not yet been able to verify this information. I have no reason to doubt it’s accuracy as the source is someone I respect. If the information I was given turns out to be innaccurate then I have simply bothered myself with a concern that has no basis. But if it is accurate information, it raises several questions. The first question is “Why not keep track of the original list price?”. It is a simple matter to add one extra field to a database table. Of course if that was to be done now, it would make clear immediately that past data is flawed. And the second question would most likely be “Why isn’t it commonly known that the last list price is being used?”.
I’ve been all over the internet in the last two days trying to verify this information to no avail. I sent off an email to NWMLS asking for verification, but have not yet received a response.
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Tags: kitsap county market report, nwmls
I often come across this in the two states that I am licensed in and I also see listing agents advertising their Sales to List Price ratios.. Using the last sales price before the home sold IMO does not give the true picture. Luckily, on the GLVAR MLS and MLSNI, we can go in and get the “Original” List price and make the manual calculations. (MLSNI actually does have the category of the Original List Price but we still have to make the manual calculation for the ratios.)
It’s important to price properties right to begin with, right? Using the last sales price before the property sells could actually be interpreted as false advertising if an agent is using these numbers to show how effective they are in pricing properties in order to get a listing. I’ve certainly seen it more then once…
There is almost always a gap between the FLP and the SP even when there have been numerous reductions from the OLP. What is critical here is in understanding the market of a particular area. Real estate experts puts us in a “soft market” when the LP/SP ratio falls below 95%. Based on that figure, many areas of Charleston, according to MLS data, are not even in a soft market! But when you look at OLP/SP, you quickly realize that in many market areas in Charleston to market is not only “soft” but actually in a “very weak” market. Ultimately, it is the specific house that needs to be judged in terms of how it holds up to pricing, but these data are quite useful for providing the context to make that judgement. Having a good buyer’s agent is critical.
DH,
Yes, that makes perfect sense. And it is a perspective I had not considered.
I think having both pieces of information is the optimum solution. Each number has some relevance. Each number, taken individually, leaves essential data out of the picture.
Part of reason for writing this article in the first place was to solicit feedback from readers. My mind is open. I was looking for a different viewpoint (or viewpoints) that would help me clarify my thinking. I had hoped to attract attention from the NWMLS as well.
As this conversation has evolved, my position has changed slightly. I believe presenting both Original List Price and Last List Price is the only way to supply truly accurate information to the users of the NWMLS data. Presenting only one or the other, skews the picture. I still feel though, that if only one number is presented, the Original List Price is the more useful number to present.
When a Real Estate Agent is doing a Listing Presentation for a new prospect, they often arrive with a file full of statistics. These statistics usually include the List/Sale Price Ratio. I can easily picture a seller using this statistic (based on Last List Price) to justify pricing their home at a level that is too high for the market. The Agent could inadvertantly set the stage for this by using this statistic. (By the way, I am not an Agent).
When a new buyer enters the market, they could easily misinterpret this statistic to mean that they cannot negotiate as hard as they might have it they had known of significant price reductions. If the List/Sales Price ratio (based on the last price) shows 99%, a new buyer would likely (and erroneously) feel they are in a seller’s market.
Thanks again for your insightful remarks.
Mark
Ah, but where in your scenario does the fact that the buyers most likely come to the property at the current listing price, and make an offer based upon that current price? As in their motivation for offering what they offer comes from the current list price as their only reality? Does that make sense? If I come across a home I love and want to make an offer. The listing price at that time, when I find the house, is 529k. I make an offer of 519k, based upon the list price of 529k. That, to me, is the most accurate reflection of the listing/sales price ratio, as the price offered is relative to the current list price not the original price.
Perhaps we’re saying essentially the same thing in some way… it would be most useful to have two statistics available. One being the eventual sales price to the original listing price. The other being sales price to current listing price. As a buyer, the only price that is truly meaningful is the one you see when you view the house for the first time. I have yet to see a buyer make a price decision based upon the original list price. If that were the case, then perhaps they’d offer more.
DH,
Welcome to SoundBiteBlog and thanks for the viewpoint.
After reading what you wrote, I felt I had to reconsider my reasoning. It’s been a while since I wrote this post. Still, after re-thinking my position, I hold to my belief that using the last list price as the basis for a List Price/Sales Price ratio is terribly innaccurate. I can think of several scenarios to illustrate the point.
The most obvious is the case where the Sales Price is lowered over time because the property was overpriced for whatever reason. Using the Last List Price as the basis for the List Price/Sales Price ratio, will always result in a 100% ratio, when in fact the property price had to be reduced to achieve the sale. The ratio, to be of any value to researchers, should reflect the need to reduce the price. A 100% ratio indicates that an (originally) overpriced property, sold for full asking price.
It’s always a pleasure to find new faces on SoundBite. Welcome, and we’ll look forward to your next comment.
Mark
I find your logic intriguing. One factor you’ve neglected is that often, in this market, sellers may be lowering their listing price based upon changing market factors. If a house is on the market for some time (possibly because of a more competitive price range), then the actual sales price vs. latest list price is an accurate assessment of the market.
I’m afraid that I find the standard agent complaint that owners overprice their house and that’s why it won’t sell, to be tiresome. There are far too many other factors at work to proclaim that every time a home sits for a while. Yes, if you price a Donna Karan dress at the same price as a KMART dress, guess what? People will beat down the door of your store to buy it. I’ve seen numerous homes that were quite lovely, in great neighborhoods, priced insanely low, and yet sit unsold. You have to take into consideration the price range (we all know that starter homes sell quickly, as do waterfront and homes with 1-2 acres, yet the mid-to-higher end homes sit longer), and the amount of overbuilding in that particular area, before you assume it’s the price. Hey, sometimes it’s the agent!
I think the last list price is truly the only accurate and non-subjective way to ascertain the ratio of list to sales price. Your point is interesting, but far too subjective.
In Charleston, South Carolina, the MLS service uses only the final list price to calculate LP/SP ratio. Your judgment is quite accurate in terms of skewing your understanding of the market. Keep in mind also, however, that other aspects of closing a house might be seller paying part or all of buyer closing costs, offsetting the price with some credit for repairs, etc. NONE of this is reflected in the sales price recorded in either the MLS or the country records office. In my analysis of the Charleston market I always calculate both the original and final list price. For more information, go to http://www.searspartners.com
[...] Current Market Conditions: The highest ratio of List Price vs. Sale Price was 101% for Area 141 (South Kitsap West of Hwy. 16). The lowest ratio was 73% for Area 168 (Indianola). Shortest Days on Market (DOM) was Area 150 (E. Central Kitsap) with 59 DOM. Area 146 (Chico) was 2nd at 67. Longest DOM goes to Area 163 (Port Gamble) with 149, and 2nd longest is Area 162 (Kingston) with 105. Overall inventory dropped slightly, and sales increased as well. Certainly a more optimistic indication that the market may be stabilizing somewhat. [...]
Mark, This is a concern and the only way around it is to let clients know that it reflects the last price reduction.
Very interesting. Jay usually calculates our own but I wonder how accurate our system is??? Something to look into.