Data Sources for Real Estate Appraisal: Macro and Micro Analysis

Chapter Title: Data Sources for Real Estate Appraisal: Macro and Micro Analysis

Introduction

Real estate appraisal is a data-driven process. Accurate and reliable data are crucial for developing credible value opinions. This chapter explores the diverse sources of data used in real estate appraisal, differentiating between macro-level and micro-level perspectives. We will examine the types of information available, the reliability of these sources, and how appraisers can effectively gather and analyze data from both perspectives. The availability of affordable and ubiquitous tools for organizing, summarizing, and describing large quantities of data are requirements to remain competitive in the current marketplace.

1. Macro-Level Data Sources

Macro-level data provides a broad overview of the economic, social, and political factors influencing real estate values at a regional, national, or even global scale. This information helps appraisers understand the general market conditions and trends affecting the subject property.

1.1. Definition and Importance
Macro-level data encompasses economic indicators, demographic trends, government policies, and market statistics that affect the overall real estate market. Understanding these factors is crucial for:
* Identifying market cycles and trends: Knowing whether the market is in a growth, stability, or decline phase.
* Assessing risk: Evaluating the potential for future value appreciation or depreciation.
* Supporting adjustments: Justifying adjustments made to comparable sales based on market conditions.

1.2. Commonly Used Sources of Macro-Level Data

Federal Government Agencies:

1. Council of Economic Advisors Publication - The Economic Report of the President

   • Information Available: Labor force statistics, employment figures, industrial production data, tax policy analysis, technology trends, government regulation updates, and income statistics.
   • Practical Application: Analyzing employment growth in a region to predict demand for residential housing.
   • URL: www.whitehouse.gov/wp-content/uploads/2019/03/ERP-2019.pdf

2. Federal Reserve Board Publication - Federal Reserve Bulletin

   • Information Available: Gross National Product (GNP), Gross Domestic Product (GDP), national income figures, mortgage market trends, interest rate fluctuations, installment credit data, sources of funds information, business activity indicators, labor force statistics, housing and construction data, and international finance statistics.
   • Practical Application: Examining interest rate trends to assess the affordability of mortgages and their impact on housing demand.
   • URL: www.federalreserve.gov/publications.htm

3. Federal Housing Finance Agency

   • Information Available: Residential market conditions including house price indexes and mortgage rates.
   • Practical Application: tracking the House Price Index to identify local market trends.
   • URL: www.fhfa.gov

4. National Vital Statistics System

   • Information Available: Birth and death rates, which can be used to project population growth or decline and its impact on housing needs.
   • Practical Application: Observing a decline in birth rates and an increase in death rates in a rural area, indicating a potential decrease in demand for housing.
   • URL: www.cdc.gov/nchs/nvss/index.htm

5. US Department of Commerce, Census Bureau

   • Information Available: Current population data, population estimates and projections, consumer income levels, housing completions and permits, other housing statistics, and operational/performance data for American businesses. Publications include American Community Survey Data Briefs and Reports, Census of Agriculture, Census of Population and Housing, Consumer Income reports, Household Economic Studies, Population Characteristics, and Population Estimates and Projections.
   • Practical Application: Using population projections to estimate future demand for retail space in a growing suburban area.
   • URL: www.census.gov/library/publications/time-series.html

6. US Department of Commerce, Bureau of Economic Analysis

   • Information Available: Consumer Price Index (CPI), Wholesale Price Index (WPI), data on mortgage debt, and the value of new construction. The Survey of Current Business is a key publication.
   • Practical Application: Analyzing the CPI to understand inflation’s impact on construction costs and property values.
   • URL: https://apps.bea.gov/scb/index.htm

7. US Department of Housing and Urban Development (HUD)

   • Information Available: Reports on FHA building starts, financing, and housing programs. FHA vacancy surveys for selected metropolitan areas.
   • Practical Application: Monitoring FHA vacancy rates to assess the health of the rental market in a specific city.
   • URL: www.hud.gov

8. US Department of Labor, Bureau of Labor Statistics (BLS)

   • Information Available: Consumer Price Index (CPI), Wholesale Prices, and monthly/annual employment and earnings figures. The Monthly Labor Review is a key publication.
   • Practical Application: Comparing wage growth to housing price increases to determine housing affordability trends.
   • URL: http://stats.bls.gov/opub/mlr/mlrhome.htm

State and Local Agencies:

1. State and Local Departments of Development, Local and Regional Planning Agencies, the State Demographer, and Regional or Metropolitan Transportation Authorities

   • Information Available: Population data, household statistics, employment figures, master plans, present and future utility systems, and transportation systems. Often publish directories of manufacturers listing firms, products, and employment figures by county, as well as other reports.
   • Practical Application: Reviewing a local comprehensive plan to understand future land use designations and their potential impact on property values.
   • Research Tip: Use online search engines to search for relevant terms such as “economic development” or the formal names of various local agencies.

2. State Bureaus of Employment Service or State Bureaus of Labor

   • Information Available: County data on employment, unemployment, and wage rates. Research reports are available on topics such as Workforce Analysis by Jobs and PA Quarterly Workstats.
   • Practical Application: Analyzing unemployment rates in a county to assess the stability of the local economy and its potential impact on commercial property values.
   • Research Tip: Use online search engines to search for relevant terms such as “economic development” or the formal names of the state bureau of employment or labor.

Trade Associations and Professional Organizations:

1. Chambers of Commerce

   • Information Available: Publications related to local business and demographics, such as Monthly Economic Indicators reports. Often contains information obtained from secondary sources like the census on local population, households, employment, and industry.
   • Practical Application: Using local employment statistics to forecast demand for office space.
   • Research Tip: Use online search engines to search for relevant terms such as “population statistics” or the formal names of the local chamber.

2. Real Estate Associations (e.g., American Real Estate Society (ARES), the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers (ASFMRA), the Appraisal Institute, Building Owners and Managers Association (BOMA) International, The Counselors of Real Estate (CRE), the International Association of Assessing Officers (IAAO), the Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and its affiliates, and the Urban Land Institute (ULI))

   • Information Available: Many publications with data useful to appraisers, including journals, reports, and magazines. Examples include the Journal of Real Estate Research, Valuation, BOMA Industrial Experience Exchange Report, BOMA Office Experience Exchange Report, Real Estate Issues, Assessing Info, Urban Land Magazine, and Realtor Magazine.
   • Practical Application: Referencing BOMA’s office vacancy rate data to benchmark a subject property’s performance.
   • URLs: www.aresnet.org, www.appraisers.org, www.asfmra.org, www.appraisalinstitute.org, www.boma.org, www.cre.org, www.iaao.org, www.mba.org, www.nar.realtor, www.houselogic.com, www.uli.org

3. National Association of Home Builders (NAHB)

   • Information Available: Information, by county and for selected cities, on new housing starts, prices, construction costs, financing, households, income distribution, and retail sales. Publications include Best in American Living, Eye on Housing, and Eye on the Economy.
   • Practical Application: Tracking new housing starts in a market area to gauge the level of construction activity and potential competition for existing homes.
   • URL: www.nahb.org

Private Sources:

1. Banks, Utility Companies, University Research Centers, Private Advisory Firms, Multiple Listing Services, and Cost Data Services
   • Information Available: White papers and research reports providing data on bank debt, department store sales, employment indicators, land prices, corporate business indicators, mortgage money costs, wage rates, construction costs, deeds, mortgage recordings, the installation of utility meters, new land use by zoning classification, population and demographics, and housing forecasts.
   • Practical Application: Consulting a utility company’s data on new meter installations to track population growth in a specific area.
   • URLs: Utilities - www.utilityconnection.com, University research centers - https://robinson.gsu.edu/research/, www.lincolninst.edu/research-data/data-toolkits, https://wsb.wisc.edu/faculty-research/academic-departments/real-estate/featured publications

1.3. Online Databases

• Numerous databases have been developed for online access to information, covering a broad range of topics and offering many options for general or specialized research.
• The information available is virtually unlimited and includes topics such as current and historical news, industry analyses and reports, corporate earnings and analyses, local, regional, and national Yellow Pages listings, and publication indexes and articles.
• Developments in computer software and hardware have resulted in low-cost, high-performance database combinations for appraisers. Some databases are contained in a single computer, while others are shared by several computers through local networks or are stored in and accessed through cloud storage services (i.e., virtual data storage space usually through a third party). Ongoing improvements in telecommunication programs and facilities, word processing, and electronic spreadsheets have facilitated appraisal analysis and report writing, as has convenient, stable, and secure access to database information.

2. Micro-Level Data Sources

Micro-level data focuses on specific properties, transactions, and local market conditions directly relevant to the subject property being appraised.

2.1. Definition and Importance
Micro-level data includes information about comparable sales, property characteristics, neighborhood amenities, and specific market conditions in the immediate vicinity of the subject property. This data is crucial for:
* Direct comparison: Identifying comparable sales and making adjustments based on specific property characteristics.
* Market analysis: Understanding the local supply and demand dynamics affecting property values.
* Accurate valuation: Developing a credible value opinion based on specific market conditions and property attributes.

2.2. Commonly Used Sources of Micro-Level Data

Public Records:

• Property Deeds: Essential for obtaining information about the property and the sales transaction, including the full names of the parties involved, the transaction date, and a legal description of the property. The property rights included in the transaction and any outstanding liens on the title may also be indicated in some areas. Appraisers must report and analyze all sales of the subject property that occurred in the three years prior to the date of value.
• Tax Assessor’s Records: May include property data for the subject property and comparable properties, with land and building sketches, area measurements, sale prices, and other information.

Listings and Offerings:

• Gathering information about properties offered for sale. Advertisements of listed properties suggest the strength or weakness of the local market for a particular type of property and the sales activity in a particular area.
• Information on purchase offers may also be obtained from brokers or managers. Listings usually reflect the upper limit of value, while offers commonly set the lower limit of value.
• Listings and offerings can be useful indicators of the values anticipated by sellers and buyers and reflect the likely turnover of competitive properties. Listings are usually set at a level that will excite market interest and therefore may be employed to test market activity. They are relevant market phenomena that appraisers consider in analyzing competitive supply and demand. An appraiser may find that tabulating information about competitive properties in a market data grid facilitates comparing the market position of the subject property to that of the competition.

Multiple Listing Service (MLS):

• Every major market in the United States is served by a multiple listing service (MLS). In this digital age, all MLS data is published electronically. An MLS primarily contains data on residential properties listed for sale during the calendar year or fiscal quarter and cites their listing prices. The service will contain fairly complete information about these properties, including descriptions and brokers’ names. However, details about a property’s square footage, basement area, or exact age may be inaccurate or excluded. In certain areas, access to the multiple listing service or electronic databases can be purchased. Multiple listing services sometimes publish the sale prices of properties that have been sold. In the past, only a small percentage of commercial, industrial, or special-purpose properties were included in traditional MLS databases, but more recently commercial MLS systems have proliferated through the efforts of commercial boards of Realtors.
• There have been some limited mergers of MLS organizations that overlap or share members, but the impetus for large-scale mergers in this area has been limited by competitive concerns and potential issues cited by the US Department of Justice. Large national brokerage companies such as Realogy and Re/Max have aggregated a variety of disparate data on a national level and made this information available to consumers. In 2008, the National Association of Realtors established the Realtors Property Resource, a national database of property information available only to members of the organization. Unfortunately, competition among aggregators to amass the largest number of listings may lead to poor quality data, i.e., institutional emphasis on quantity over quality control increases the likelihood of duplicates, dated information, and incorrect information in the databases.

Corporate Real Estate Services Sites:

• CBRE: www.cbre.us (Corporate real estate services site with listing information as well as local market research reports)
• Colliers International: www2.colliers.com/en (Corporate real estate services site with listing information as well as local market research reports)
• CoStar: www.costar.com (Database of researched information including properties for sale, properties for lease, verified comparable sales transactions, and tenant information. Subscription basis.)
• Cushman & Wakefield: www.cushmanwakefield.com (Corporate real estate services site with listing information as well as local market research reports)
• Jones Lang LaSalle (JLL): www.us.jll.com/en (Corporate real estate services site with listing information as well as local market research reports)
• LoopNet: www.loopnet.com (Site with listing and sales information. Some free; some subscription based.)
• Marcus & Millichap Real Estate Investment Services: www.marcusmillichap.com (Corporate real estate services site with listing information as well as local market research reports)
• NAI Global: www.naiglobal.com (Corporate real estate services site with listing information as well as local market research reports)
• Transwestern: www.transwestern.net (Corporate real estate services site with listing information as well as local market research reports)

Commercial Real Estate Data and Analytics:

• RealtyRates.com: www.realtyrates.com (Commercial real estate investment, financial and market rates and returns for properties across the United States. Some free survey data and some by subscription only.)
• Reis, Inc. (Real Estate Solutions by Moody’s Analytics): www.reis.com (Commercial real estate performance information and analysis at the metro (city), submarket (neighborhood), and property level. Includes some sales data, rental data, new construction data, real estate marketinformation, and other data. Subscriptions for a fee. Appraisal Institute members get a discount.)
• Site to Do Business: www.stdb.com (Demographic data with robust reporting and analytical tools. The company has different subscription levels with one free for Appraisal Institute members and a more complete use of the site for a fee.)

Personal Contacts:
In addition to the data obtained from public records and published sources, personal contact with developers, builders, brokers, financial and legal specialists, property managers, local planners, and other real estate professionals can provide useful information. Practicing appraisers need communication skills as well as analytical techniques to research sales, improvement costs, and income and expense data thoroughly in performing appraisal assignments.

2.3. Mathematical Applications

• Regression Analysis: Used to determine the relationship between property characteristics (e.g., size, location, age) and sale prices.

  • Equation: Y = a + b1X1 + b2X2 + ... + bnXn

    • Where:
      • Y = Predicted sale price
      • a = Intercept (constant)
      • b1, b2, … bn = Regression coefficients for each independent variable
      • X1, X2, … Xn = Independent variables (property characteristics)

  • Application: Develop a model to predict the sale price of a house based on its square footage, number of bedrooms, and lot size.

• Paired Data Analysis: Used to isolate the value of a specific property characteristic by comparing two similar properties that differ only in that characteristic.

  • Formula: Value of Characteristic = Sale Price of Property A - Sale Price of Property B

  • Application: Estimating the value of a view lot by comparing the sale prices of two identical houses, one with a view and one without.

3. Data Validation and Reliability

It’s crucial to validate data from any source to ensure its accuracy and reliability. This involves:
* Cross-referencing data: Comparing information from multiple sources to identify discrepancies.
* Verifying data: Contacting the source of the data to confirm its accuracy.
* Analyzing trends: Identifying inconsistencies or outliers that may indicate unreliable data.

• The potential for misuse of pooled data is a concern. Ensuring the confidentiality of certain information in real property transactions is a continuously evolving issue. Both the Uniform Standards of Professional Appraisal Practice and federal legislation such as the Gramm-Leach-Bliley Act of 1999 set forth privacy requirements regarding confidential information. Certain shared databases allow for restricted access to certain fields within data records deemed confidential by the contributor of the data; other databases only pool data that is not considered confidential.
• Currently, the dominant trend in this area is the increased exposure of data to the public. Zillow, Trulia, Redfin, and Realtor.com (among others) are increasingly making data that was formerly guarded by companies such as Re/Max and Realogy available to consumers. This empowerment of consumers is expected to continue to drive a move toward less restricted data access.
• Advances in artificial intelligence (AI), blockchain databases, and automated valuation models (AVMs) have the potential to transform real estate appraisal. Blockchain databases allow for data sharing in a decentralized “peer-to-peer” network. Advances in AI and AVMs will increase the amount of available data, the speed at which the data can be accessed, and the ways that the data can be sorted and narrowed down by specifications. General technological advances will also make accessing this data easier on more compact and lightweight devices. In general, appraisers can look ahead to more data being more widely available.

4. Data Privacy and Ethical Considerations

Appraisers must adhere to ethical guidelines and legal regulations regarding data privacy. This includes:
* Protecting confidential information: Ensuring that sensitive information about clients and properties is not disclosed without permission.
* Complying with privacy laws: Following regulations such as the Gramm-Leach-Bliley Act, which sets forth privacy requirements regarding confidential information.
* Transparency: Clearly disclosing the sources of data used in the appraisal report.

Conclusion

Effective real estate appraisal requires a comprehensive understanding of both macro-level and micro-level data sources. By utilizing a variety of data sources, validating the information, and adhering to ethical guidelines, appraisers can develop credible value opinions that are well-supported and reliable. The data analysis and interpretation skills are essential competencies for all real estate professionals.