Are Existing Home Prices Overrepresented By Up To 40%?

Tyler Durden's picture

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.

As for the examples, here is property 1 as represented by the MLS: note the price of $159,500

And below is the actual final auction price on the exact same property taken from RealtyBid:

The MLS certainly pulled all the correct information on the property... all except for the price.

Another example: 5572 Goodhue Ave, Rockford IL 61109. The house was sold in auction for a purchase price of $90,061 as the below screenshot from the HUD auction indicates:

Yet the very same property was listed on foreclosure.com, and subsequently pulled by Zillow, as having a value of $113,400

These are merely two examples.

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...

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Howard_Beale's picture

Having been here for over a year--every time I see the bitchez crap at the top of the post I want to personally beat the crap of the poster. It is getting so damn old. STFU!

VeloSpade's picture

Hey Howard,

How about every time you see it 3rd from the top?

Biiaaattcccheezzzzz!

Thomas's picture

Makes me chuckle. Reminds me of what a fever swamp this is.

suckapump's picture

I have a brilliant idea! Let's all respond to the "bitchez" post so that we all have to scroll waaay down to see on-topic comments! Yay!

goldfish1's picture

I'm  jealous I didn't post it.

digitalhermit's picture

Wouldn't-be-zerohedge-without-it, bitchez!

Hungry For Knowledge's picture

Howard, go away.

It's part of "who we are."

Village Idiot's picture

"Howard, go away."

"It's part of "who we are."

 

For better or worse, it's who we are, right now.  Not to sound self righteous here, but the average ZH age of the commenter's who align with the above post on this thread, is about 12 weeks.  ZH has been many things along the way, not all good.  One constant, though, is Howard Beale's contribution. Show the avatar some respect, bitches.  You sound like children.  And most are not here to listen to children.  Poor humorists, maybe.  Children, no.

Yes, I know, there are no rules in fight club.

reading's picture

Howard, 

you have to learn to ignore and just be amazed that they are always first.  I still can't figure out how they do that...

tmosley's picture

So, you're saying you're mad as hell, and you aren't going to take it anymore?

Everyman's picture

Assault and Battery, Bitchez!!!

CashCowEquity's picture

Make the World a Better Place...Punch a Real Estate Agent in the Face.

Frankie Carbone's picture

You mean send him into attornety?

Say, who junked you??? Is there a lawyer on the boards? Lighten up. Everyone loves a good dead lawyer joke. Come on kids, gather round'. I've got a good one for you. 

Did you hear the one about Pinochet, Pol Pot, and the lawyer....

 

sodbuster's picture

My favorite lawyer joke.

Q:If you were in a room with Hitler, Stalin, and a lawyer, and you had a gun but only had two bullets- who would you shoot? A: You shoot the lawyer twice.

Buzz Fuzzel's picture

Q. What do you call 1,000 lawyers chained together on the bottom of the ocean?  A. A good start.

Everyman's picture

BEST LAWYER JOKE OF ALL TIME!!!

 

Q:  Why do Lawyers wear ties?

A:  To hold down the foreskin!

Eternal Student's picture

We're in a handbasket, on a journey, going to visit our attorney.

VeloSpade's picture

Make the World a Better Place... beat off on a bitch's face.

tip e. canoe's picture

damn those pesky kids with a modem

Sausagemaker's picture

"...and I'd have gotten away with it if it wasn't for those pesky kids..."

Species8472's picture

I have on occasion called our local town assessor for information about the sale price of local properties. Would be interesting to know where they get the info from and is it an honest price.

Fred Hayek's picture

You know what's another scam going?  I'm experiencing this now.  I'm selling my condo.  The closing's in a couple weeks.  Knock on wood.  I've agreed to a price with the buyer but she's buying with some ridiculous negligible amount down and phrased her first offer as $XXX,000 with $5,000 back for closing costs. 

I was totally thrown at first.  "WTF is that?" I asked my agent.  He said it's pretty common with these FHA buyers.  We eventually negotiated a price but the official price that'll end up in the recorded deed is going to be $5,000 more than I actually get out of it.  Ridiculous.  And it inflates the official price a couple percent.

 

Dixie Normous's picture

And she gets to pay taxes on the higher, false price.  Hahaha.

Fred Hayek's picture

Well, I feel okay about that part.  And I feel okay that my neighbors get a slightly higher number as a reference point should they sell some time in the future.  But, christ, save some freaking money then buy.  It's not rocket science. 

Actually I think it's also a way for whoever's doing her mortgage to rip off her and me.  She doesn't care what the closing costs are.  The "seller" is paying that.  It's just a number we negotiated around. 

Howard_Beale's picture

Not really--it's just the buyer couldn't really afford the closing costs and asked the seller to pay XX amount and it could also help with moving costs. It has been a method in buyer's markets for years for the buyer to get a better deal. And the taxes on $5000 more are negligible. The realtor makes a tiny amount more and the bank/mortgage banker still has to pass that 5K back through. Nothing here. Move along.

DonnieD's picture

This is fairly significant from the standpoint that rolling 5k of closing costs into a 200k sale price increases the sale price by 2.5%. My County Property Appraiser books the $205,000 as the price the house was sold at which is an inflated value. It's not much but it definitely skews the numbers higher.

BobWatNorCal's picture

And you both get to pay yr agents a bigger commish.

Fred Hayek's picture

Ehh.  5% of $5,000 is only $250 not that big of a deal.

JLee2027's picture

If I ripped my customers 5% on a deal, they would be ex-customers.

Your agents are unethical, imo.

Village Idiot's picture

Easy now.  "seller paid" closing costs have been around since the beginning of time.  In most transactions, the seller and buyer agree on price, and then the closing costs are added on top.  The seller still gets their net of fees price and the buyer is able to finance some closing costs.  This tactic has helped facilitate many a sale.  In a lot of cases the seller wouldn't have a buyer without it.  Nothing sinister.

Village Idiot's picture

Just curious - what part of that statement was junk IYO?

DarkAgeAhead's picture

Nothing I can see. Maybe somebody's philosophically opposed to this and they junked the messenger!?

Note: I didn't junk it.  I think it's a good post.

Double note:  I post this at a clear risk of being junked myself.  Bitchez!

Max Hunter's picture

It's not sinister but it adds in allowing people to buy houses that shouldn't be buying houses and therefore raising prices with artificial demand. I paid all my closing costs (more than 5k) and 10% down.. I can't help thinking that if everyone had to do that, (actually 25% down should be law) we would never have had the bubble.

I didn't junk you.. Just had to add my 2 cents that I think there are many flaws in this system and allowing people not to put money down and finance what they should be paying out of pocket keeps more buyers and higher prices.

Commander Cody's picture

Inflating the mortgage to pay for "seller" paid closing costs is fraud.  If it comes out of the sellers pocket, its OK.  Its sad to see that we have learned nothing from the practice of selling homes to people who cannot afford them and who have no skin in the game.  The can walk debt and loss free at any time.  Does that make sense to anyone?

Village Idiot's picture

Not having sufficient capital to close (or not wanting to use capital) has nothing to do with ability to qualify.  In a normal market, down payment is primarily used to meet certain lending guideline thresholds, or affect payment.  And in many cases smaller down payment is preferred (leverage).

Did low/no down payments have an impact on this last go around?  Sure.  Did loose qualifying standards have an impact?  Yes, definitely.  However, down payment has nothing to do with ability to qualify.

Look at the numbers regarding default when there was a 20% + down payment - even on a full doc loan.  The numbers are horrible.  Job losses, wage cuts, value drops - they all fell into the same hole as people who should never have bought a home in the first place. I do understand your frustration, though.

Fred Hayek's picture

I agree that it's not unethical.  (and I didn't junk you) But I paid the damn costs myself when I bought.  As you say, it is helping to facilitate the sale because she's not putting much money down either so she's going to have very little "skin in the game".  I guess I sort of naively thought that that was going to be a thing of the past after the notoriously bad mortgages issued in the making of the bubble.

Village Idiot's picture

I hear you.  Congratulations on getting your property sold.

Hang The Fed's picture

Big plus.  Ripping is still ripping, with no regard for the amount, and I don't give a flying fuck if you're selling hotdogs from a van or building palm-shaped islands in a gulf.  Of course, in the specific context of the article, I think we're all being fleeced of our sanity.  No small wonder that I pass upwards of fifty houses for sale in a given day, and none of them move for months at a clip, save for the shuffle of which agency's sign is out front or when they come on the market, go off for a time, then pop back up again.

Village Idiot's picture

I'm all for putting sanity back in the Real Estate market - pull all life support.  Let price discovery take it's course.  The sooner this happens the sooner the market will recover. Albeit on a slower healthier price trajectory.

Spalding_Smailes's picture

But then the banks go boom.

MBS can't allow the "price discovery".