Data Sources: Macro and Micro Analysis

Chapter Title: Data Sources: Macro and Micro Analysis

Introduction

Real estate appraisal relies heavily on the availability and accurate analysis of data. This chapter explores the critical data sources needed for both macro and micro-level analyses in real estate appraisal. Mastering these sources is essential for appraisers to develop credible and well-supported opinions of value. Understanding where to find and how to interpret data is the foundation of sound appraisal practice.

1. Macro-Level Data Sources

Macro-level data encompasses broad economic, demographic, and social trends that influence real estate values. These data provide a context for understanding market dynamics and identifying factors that impact property values at a regional or national level.

1.1 Definition and Importance
Macro-level data refers to information about the overall economy, population trends, and industry conditions. This data is important because it helps appraisers understand the broader economic environment in which a property exists, which significantly influences its value.

1.2 Common Sources of Macro-Level Data
Several entities compile and disseminate macro-level data. These include governmental agencies, trade associations, and private enterprises.

• 1.2.1 Federal Government Agencies
  Federal agencies offer a wealth of economic and demographic data that is crucial for real estate appraisal.

  • A. Council of Economic Advisors: Publishes “The Economic Report of the President,” providing information on the labor force, employment, industrial production, tax policy, technology, government regulation, and income.
    • Example Application: Analyzing trends in employment rates from this report to forecast demand for housing in a particular region.
  • B. Federal Reserve Board: Issues the “Federal Reserve Bulletin,” which contains data on gross national product (GNP), gross domestic product (GDP), national income, mortgage markets, interest rates, installment credit, business activity, the labor force, employment, industrial production, housing and construction, and international finance.

    • Mathematical Application: Using interest rate data from the Federal Reserve Bulletin to calculate discount rates for income capitalization approaches. The present value (PV) can be calculated with the formula:

      PV = CF / (1 + r)^n

      Where:
      CF = Cash Flow
      r = Discount Rate
      n = Number of Years
      * C. Federal Housing Finance Agency (FHFA): Provides data on residential market conditions.
      * Example Application: Using FHFA data on house price indices to adjust comparable sales prices for market conditions.
      * D. National Vital Statistics System: Publishes “National Vital Statistics Reports” with statistics on birth and death rates, which can be used to project population growth and housing demand.
      * Example Application: Use birth and death rate to project population growth in a specific area.
      * E. U.S. Department of Commerce, Census Bureau: Offers various publications, including the “American Community Survey,” “Census of Population and Housing,” and reports on consumer income, housing completions, and permits. Data covers population, housing, and business statistics.
      * Example Application: Using Census data on household income to assess the affordability of housing in a given market.
      * F. U.S. Department of Commerce, Bureau of Economic Analysis (BEA): Publishes the “Survey of Current Business,” featuring the Consumer Price Index (CPI), wholesale price index, data on mortgage debt, and the value of new construction.
      * Mathematical Application: Adjusting historic sales prices using the CPI to account for inflation. The adjusted price can be calculated by:
      Adjusted Price = Original Price * (CPI Current / CPI Original)
      * G. U.S. Department of Housing and Urban Development (HUD): Provides reports on FHA building starts, financing, housing programs, and vacancy surveys.
      * Example Application: Analyzing FHA vacancy surveys to identify trends in rental housing markets.
      * H. U.S. Department of Labor, Bureau of Labor Statistics (BLS): Issues the “Monthly Labor Review” with data on the CPI, wholesale prices, and employment figures.
      * Example Application: Use employment data to determine the strength of a local economy and its impact on commercial real estate demand.

• 1.2.2 State and Local Government Agencies
  State and local departments of development, planning agencies, and transportation authorities often publish directories of manufacturers, reports on population, households, employment, master plans, and utility and transportation systems.

  • Example Application: Using local planning agency data on future transportation projects to assess potential impacts on property values in affected areas.

• 1.2.3 Chambers of Commerce
  Chambers of Commerce provide publications related to local business and demographics, including data on population, households, employment, and industry.

  • Example Application: Use Chamber of Commerce reports on local industry growth to identify opportunities for commercial real estate development.

• 1.2.4 Real Estate Associations
  Organizations like the American Real Estate Society (ARES), the Appraisal Institute, and the National Association of Realtors (NAR) offer publications with data on national and regional economic indicators, existing home sales, and office vacancy rates.

  • Example Application: Use NAR data on existing home sales to determine the level of activity in a residential market.

• 1.2.5 National Association of Home Builders
  Publishes information on new housing starts, prices, construction costs, financing, households, income distribution, and retail sales.

  • Example Application: Using NAHB data on new housing starts to gauge the level of construction activity in a market.

• 1.2.6 Private Sources
  Banks, utility companies, university research centers, multiple listing services (MLS), and cost data services offer data on bank debt, department store sales, employment indicators, land prices, corporate business indicators, mortgage money costs, wage rates, construction costs, deeds, mortgage recordings, and utility meter installations.

  • Example Application: Using utility company data on new meter installations as an indicator of new construction and occupancy.

1.3 Accessing and Organizing Macro-Level Data
The availability of online databases has significantly improved access to macro-level data. Appraisers can now access a vast array of information through the internet.

• Practical Tip: Catalog and cross-index data obtained from various sources to facilitate efficient retrieval and analysis.

2. Micro-Level Data Sources

Micro-level data focuses on specific property characteristics, market conditions, and transactional details relevant to the subject property and comparable sales.

2.1 Definition and Importance
Micro-level data pertains to specific properties, neighborhoods, and transactions. It is essential for making direct comparisons and adjustments in the appraisal process.

2.2 Common Sources of Micro-Level Data
Micro-level data is obtained from a variety of sources, including public records, listings, offerings, and direct communication with market participants.

• 2.2.1 Public Records
  Public records, such as property deeds and tax assessor’s records, provide essential information about property ownership, legal descriptions, sales transactions, and property characteristics.

  • Example Application: Obtaining a copy of the property deed to verify the legal description and identify any easements or encumbrances.
  • Practical Tip: Search public property records electronically whenever possible to streamline the data collection process.

  • 2.2.2 Listings and Offerings
    Information about properties offered for sale or lease provides insights into market conditions and pricing expectations. Listings usually reflect the upper limit of value, while offers indicate the lower limit.

  • Example Application: Analyzing listing prices of comparable properties to establish a range of potential values for the subject property.

  • 2.2.3 Multiple Listing Services (MLS)
    MLS databases contain detailed information about properties listed for sale, including descriptions, listing prices, and broker contact information.

  • Example Application: Use MLS data to identify comparable sales and gather detailed information about property characteristics.

  • Caution: Be aware of potential inaccuracies in MLS data and verify information with other sources.

  • 2.2.4 Commercial Real Estate Data Providers
    Companies like CoStar, LoopNet, and Reis provide comprehensive databases of commercial real estate information, including properties for sale and lease, comparable sales, and market analytics.

  • Example Application: Use CoStar to research lease rates and vacancy rates for office properties in a specific submarket.

  • 2.2.5 Direct Communication with Market Participants
    Personal contact with developers, builders, brokers, property managers, and local planners can provide valuable insights into market conditions and property-specific information.

  • Example Application: Interviewing local brokers to gather information about recent sales and market trends.

  • Practical Tip: Develop strong communication skills to effectively gather information from market participants.
  • 2.2.6 Corporate Real Estate Services Sites
    Sites like CBRE, Colliers International, Cushman & Wakefield, Jones Lang LaSalle (JLL), Marcus & Millichap Real Estate Investment Services, and NAI Global.
    These sites provide listing information as well as local market research reports.

• 2.2.7 Investment and Financial Rates and Returns Services
  Sites like RealtyRates.com can provide commercial real estate investment, financial and market rates and returns for properties across the United States.

2.3 Analyzing Sales Data
When analyzing sales data, appraisers must consider factors such as the terms of the sale, the motivations of the parties involved, and any unusual circumstances that may have influenced the transaction.

• Critical Analysis: Analyze all sales of the subject property within the three years prior to the date of value, as well as any current listings or agreements of sale.
• Potential Issue: Be alert to sales between related parties or transactions that may not be arm’s-length.

3. The Interplay Between Macro and Micro Data

Macro and micro-level data are interconnected and should be analyzed together to develop a comprehensive understanding of real estate value.

3.1 Integrated Analysis
Macro-level data provides the context for understanding micro-level market conditions. For example, a strong regional economy may support higher property values at the micro-level.

3.2 Example Scenario
Consider a residential property in a growing metropolitan area. Macro-level data, such as population growth and employment rates, indicates a strong demand for housing. Micro-level data, such as comparable sales prices and inventory levels in the neighborhood, confirms this demand and supports a higher appraised value.

4. Emerging Trends in Data Collection

Advances in technology are transforming the way appraisers collect and analyze data.

4.1 Online Databases
The proliferation of online databases has made it easier than ever to access a wide range of real estate data.

4.2 Artificial Intelligence (AI) and Automated Valuation Models (AVMs)
AI and AVMs are increasing the speed and efficiency of data analysis. However, appraisers should use these tools with caution and always verify the results with independent research.

4.3 Blockchain Technology
Blockchain databases have the potential to improve data sharing and transparency in real estate transactions.

4.4 Data Quality and Privacy Concerns
As data becomes more widely available, it is crucial to address issues of data quality and privacy. Appraisers must ensure the accuracy of their data and protect confidential information.

5. Conclusion

Mastering the sources of macro and micro-level data is essential for successful real estate appraisal. By understanding where to find and how to interpret this data, appraisers can develop credible and well-supported opinions of value. Continuous learning and adaptation to new technologies are crucial for staying ahead in the evolving field of real estate appraisal.