Word of Caution for Relying on Purchased Research Market Data
Updated: 4 days ago
A word of caution for commercial investors and brokers: Do not rely entirely on any one paid research platform for market information. We discovered a 30% gap of sales transactions from one of our top paid sources of information during a recent market data review. As a broker, I build my database of transaction and property information from multiple paid sources, public records, information directly from buyers and sellers, and multiple other sources to have an accurate pulse of Jacksonville's multifamily market.
Why should readers care?
Maintaining an accurate pulse on the market enables investors to make timely adjustments to their investments and overall plans to maximize returns and avoid costly mistakes. Historical information provides the most concrete evidence of where the market has been, gives an indication of where the market is today, and likely where it's headed tomorrow. If acquisition and disposition decisions are based on incomplete historical market information, the results could be disastrous.
Investopedia.com defines a term called a false market. A false market would be the outcome of someone submitting erroneous, misleading, or fraudulent information that impacts market pricing. A false market caused by a research platform isn't intentional but can occur if market participants (investors) presumes the information is complete when it is not during a sale or purchase. In simple investing terms, basing high-stake decisions without 30% of the market sales information can be disastrous for a real estate investor trying to determine when to sell or at what price. Sellers missing a higher sales price trend could lead to missing out on value. Sellers overpricing can lead to overexposure to a downward trending market. Buyers can overpaying in a downward trending market.
The 30% Gap of Information
In November, I completed a year-to-date review of the multifamily sale transactions in the Jacksonville market to verify my sales data. During this review, I looked into the accuracy of our paid sources and was shocked at a 30% gap of sales transactions. This was from our most reliable paid sources of information. Our 2nd best paid source wasn't a stellar performer in accuracy either. Fortunately, I aggregate market information from multiple sources. This enables me to present a near complete sales comparable picture for clients seeking a market valuation and listing services.
Speaking more about this gap of information, I usually see and expect a delay with paid data sources catching recent sales within the last 60 days and a missed sale from time to time beyond that time frame. In this instance, the extent of missed sales greater than 60 days was shocking. The stakes are too high and the need for immediate information is too great to not have my own bank of information.
A research representative from outside a market won't consistently reach market information in a timely manner based on the vicinity to the market and the lack of involvement in the market. How much incentive does a salaried researcher really have to gather information quickly? The information tends to be good enough to write reports, generate graphs, and charge for it all but do you want to be making high-stake decisions on information that is just good enough?
Give us a call so we can discuss where your property is in relation to the market.
Jake Ammon is a Vice President with Addison Commercial Real Estate in Jacksonville, FL. He specializes in commercial investment properties. Contact him at email@example.com or call Jake at 1-904-834-9809.