Sunday, September 9, 2012

The Death of the Dreaded "Z" Sale

Since I began in the real estate industry back in 2003, there has always been a huge debate regarding the dreaded "Z" sales price. For those of you not familiar with the real estate jargon, a "Z" sales price means that the true sales price was not disclosed in the MLS. Area brokers and appraisers would see the last list price of the home with a "Z" next to it; therefore, no one in the real estate industry would be able to use that sale as a reliable comp.

The impact of this little letter will never affect approximately 99% of the real estate market areas throughout North Texas. However, in some of the higher end neighborhoods, such as the Park Cities, Preston Hollow, and Turtle Creek, "Z" sales could account for up to 20% of all the sales. This meant that agents and appraisers would never be able to use any of those sales when running market analyses for their respective clients. Since Texas is a "non-disclosure state" there was a question of whether or not our local MLS could prohibit area brokers from using the "Z" sales price and require them to disclose actual sales prices.

Well it looks like this debate has finally come to an end...for now. Feel free to read the full release from the MetroTex Association of Realtors below. (Link provided here) In short, as of October 15th, 2012 brokers will no longer be allowed to utilize "Z" sales in the MLS. I'm happy this rule is being abolished. It will mean more accurate appraisals for agents, appraisers, and the city of Dallas. Of course, this will also mean some of the more expensive purchases will have to pay more property taxes. For example, I once looked at a home listed at $10M; the Dallas County Appraisal District had it valued at $3.95M. It turned out that the last few times this home had sold, the price in the MLS had been "Z'd out;" therefore, the county had no way of knowing what the home was truly worth. I'll save my paying-your-fair-share debate for another blog post, but for now let's just say that I'm happy with this change. I also hope the commercial real estate sector will jump on board. (See my post about Dallas Country Club for my thoughts on that)

Newly Revised NTREIS Rules have received final approval from NAR and among the changes is new language that removes the “Z sale” provision and clarifies mandatory reporting of sales prices to the MLS.  MetroTex has adopted an enforcement policy that includes a period of time to educate MLS subscribers about the rules change and allow for existing contracts with a non-disclosure requirement to close.  We will include announcements at the area MLS meetings as well as in this publication and other written notices from the association with information about the Rules change and we will not accept any non-disclosure requests dated after October 15, 2012.
Why this change and why now? 
The NTREIS Rules and Regulations have always required that MLS Participants disclose the sales information for listings and that listing agreements with your Sellers include provisions for including this information.   However, since the State of Texas is one of a few states that does not require the sales price be included in the publicly recorded Deeds,  there was always some question over whether a purchaser had the right to demand that their purchase price not be reported to the MLS system.  For that reason, our Rules inserted a provision that allowed a purchaser to make this request and, if all parties agreed, the Listing Participant could report this as a “Z sale”.  This was always intended to be an exception for the rare circumstance where a purchaser made the request and the “Z” was a placeholder beside the last list price so that these “Zero” sales would not significantly affect our statistical reports by including a “$0” sale within a sampling of comparables.  A last list price would be reasonably close to the actual purchase amount and would be on an insignificant number of sales, thus having little effect on comparables.     For example, in 2005, “Z sales” were less than 1% of overall sales in the system, though even then we were seeing over 10% in some neighborhoods.   By 2010 we saw a 150% increase to over 2% of the market being non-disclosed sales and close to 20% in some neighborhoods.  This begins to have a significant impact on comparable sales available and hinders the ability of real estate sales professionals to accurately advise clients on home values.  The inability for Appraisers to provide accurate comparables negatively impacts the lender’s loan approval process.  MetroTex began an educational process on the Rules requirement to report sales information and to enforce the “failure to report sales” provision of the Rules against MLS Subscribers that had a high level of non-disclosed sales and to closely scrutinize the documentation to support such sales to ensure that the requests were being initiated only by purchasers and in compliance with the Rules.   We also began discussing with our neighboring MLS Providers and with NTREIS possible rewording of the provision in the Rules that allowed for nondisclosure requests.  These efforts did result in a reduction of non-disclosed sales to approximately 1 ½ %,  but there still remains a significant impact in some neighborhoods.
At the same time, an unrelated challenge in another market area over the requirement to report sales information in a “non-disclosure” State* resulted in a legal opinion and a Rules clarification in the National Association of REALTORS MLS Policy and Model Rules clarifying that an MLS, which is a private subscription based service, can require its Participants to report all sales information, including sales prices.   In a “non-disclosure” State,  this requirement can still be made as long as the information is reported to the MLS service and the MLS service does not publicly distribute that sold information to 3rd parties  (with a few exceptions for academic and statistical reporting).  Mandatory adoption of this new language from NAR  removed any question of reporting sales prices, allowing NTREIS to remove the exception that allowed for non-disclosure.
A common reason given for a purchaser to request non-disclosure has been privacy.  This is often the case for a high profile government official or celebrity and accounted for the reason the “exception” was added to Rules many years ago.   In today’s world of social blogs and tabloid news,  locations and prices paid are now public fare.  We have seen several cases over the last few years where this information was not disclosed to MLS Participants and Subscribers  (who pay a fee for their services), but was front page “news” in tabloids and gossip blogs.   The information reported did not come from the MLS then and will not come from the MLS in the future -  the MLS Rules include specific provisions on how Participants and Subscribers may use sold information and specifically prohibits distribution of this information to the public.   For more information on how to address questions over reporting of sales information, see our FAQ’s.
*non-disclosure State:   In most states, the Deed recorded in the Public Records states the amount paid for the property being deeded.   In a “non-disclosure” state  (like Texas),  there is no legislative requirement that the amount tendered be included in the recorded Deed, thus most Deeds in such states include “$10 and other consideration” in place of the actual amount tendered.    In Texas, there is no law prohibiting the amount tendered being included, it simply is not legislatively required.

1 comment:

  1. Interesting stuff. We don't seem to have anything similar to the "z" in the Hilton Head real estate market/MLS which I'm glad of. Relying on MLS information as much as we do having a solid set of data is critical.