In a recent article on the pros and cons of buying "flips" we made a flip statement and it is probably not the first time we have done so. Check the deed, we said, to find out how much the owner paid for the house.
It never occurred to us that there were states where home sale prices are not part of the public record or sometimes legally mandated a secret. Never until today when we read an article by Jay MacDonald entitled "Do Secret Home Sale Prices Hurt Buyers?"
Given the frenzy surrounding real estate prices over the last seven years it
certainly seemed that there was no such thing as a secret transaction nor did
it appear likely that anyone wanted such secrets kept. Buyers were moaning and
sellers were gloating and everyone seemed eager to discuss every last penny
they had made or paid. Many local newspapers actually run deed information
- buyer, seller, price, and amount of mortgage - as a regular feature; and think
of the Internet companies that have sprung up in recent years to exploit the
craving for real estate price information; Zillow, HomeValues.com; Trulia, etc.
But, there are indeed about a dozen states where disclosure of home sales prices
is not required and maybe outright prohibited. Non-disclosure states
fall into two categories although there is a lot of grey area as well. Some
non-disclosure states collect a transfer tax on the sale of homes and others
do not. Since transfer tax is public information and since it is usually based
on the sale price of a house, it is relatively easy to back into price. States
that collect a transfer tax are Arkansas, Delaware, North Carolina, Oklahoma,
Tennessee, and Rhode Island although one source states that Rhode Island became
or will become a full disclosure state this year. Alaska, Idaho, Kansas, Louisiana,
Mississippi, Montana, North Dakota, Texas, and Utah do not collect and do not
disclose. New Mexico is still counted in this last group on several lists we
found but supposedly became a full disclosure state three years ago.
There are also variations by county in some states. For example, Missouri is a non-disclosure state but several of the larger counties have passed full disclosure ordinances. A number of counties in Indiana are also providing information to interested parties even though the state maintains nondisclosure status. In other states individual counties consider the provision of price information on documents to be voluntary.
In states that do not collect transfer taxes those who want or need to know have developed algorithms based on mortgage amounts or other reported data to arrive at pricing information. For example, HomeInsight, a division of the Top Performer group which provides sales information to its clients reports that it uses "standard practice" which is to estimate the sale amount by applying a calculation to the mortgage value for home purchases. For example, depending on the type of mortgage, they use the following formulas:
- FHA - mortgage amount multiplied 1.01
- VA - mortgage amount multiplied by .98
- Conventional mortgage - mortgage amount multiplied by 1.33
Thus a $100,000 mortgage would translate to sales prices of $101,000 $98,000 and $133,000 respectively. While these equations are virtually worthless on a house-by-house basis, average sales prices are quite accurate.
So, in nondisclosure states, who holds the keys to the kingdom? Real estate agents of course. Whether officially or by practice, one can assume that agents in a given market have an active information exchange and that local multiple listing services have databases of price and marketing information which they distribute by categories if not by individual properties.
The title of MacDonald's article indicates that he is exploring whether buyers in non-disclosure states were disadvantaged by the lack of individual home information. However he did not ultimately fully address that issue, talking instead about whether agents are protective of their unique knowledge or in anyway hurt by nondisclosure and how non-disclosure might ultimately impact commission structure.
Our curiosity, however, is piqued by how owners, sellers, mortgage lenders, and taxing authorities are affected by the secrecy. For example, does the incidence of properties that are for sale by owner differ between full disclosure and nondisclosure states because sellers find it difficult to determine appropriate asking prices for their homes? How do appraisers find and evaluate "comps" to arrive at values for mortgage purposes? What do tax authorities use as reality checks for setting assessed values? How do homeowners document their protests of those assessed values?
Since we have just pleaded to cluelessness about sales price disclosures we feel free to ask for input. If you practice or even follow real estate in a nondisclosure state we would appreciate hearing from you vis-�-vis the questions in the paragraph above. Contact us via email or use the comments section below.
