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Real estate investors need access to good information.
Our ability to find accurate, reliable data is what enables us to make educated decisions and pursue the right investment opportunities.
Some of the most important data we need is the comparable sale prices (“comps”) for the properties we're evaluating.
This data helps us determine a realistic value for each property, and it's a core component of how we formulate an appropriate offer price when we're buying and a listing price when we're selling.
But there's a problem—in some states around the country, this “sold price data” is not available to the general public.
These states are known as non-disclosure states, and if you're working in one of these geographic areas, there will be some barriers standing between you and the information you need.
The Full List of Non-Disclosure States
Below is a map that displays all of the non-disclosure states in the U.S.
When looking at this map, it's important to understand that there are varying degrees of what “non-disclosure” means.
It's ultimately a question of whether the price needs to be disclosed to the local assessor at all, and if it is required, who is able to see that information (is it limited to only the local assessment officials, or can the general public see it as well)?
The full disclosure states (where everything is reported to everyone) will be colored green, the non-disclosure states (where there is no reliable method to obtain sale prices for all properties from public sources) will be colored red, and the “in-between” states (where there is some level of disclosure or a means to back into the value based on what is disclosed to the public) will be colored orange. As a general rule, the red states will be most difficult to obtain information, the orange ones will be a hassle, but not impossible to obtain the information, and the green ones will be the easiest to obtain the information.
Disclaimer: The information on this map was pulled from several sources, both online and offline. If you want to explore the sources we used, each source will be linked within each state. This map isn’t intended to be the authoritative answer on how each state works, but simply the most educated assessment we could make based on the information we were able to gather. If you have evidence to show that our assessment is incorrect in any particular state, feel free to contact me and point out any sources to support your claim.
Perhaps the most notable source we found on this subject was the PTAPP Survey from IAOO, which seeks to review and clarify the disclosure practices throughout the United States and Canada. Their most recent survey was done in 2017 and published in 2018, but these laws can change from year to year.
Classifying each state in this regard is actually quite complicated because there are varying degrees and definitions of what “non-disclosure” means.
According to Zillow (which relies on this data for their Zestimates), in some states, the sales prices aren't available because the information doesn't need to be submitted to the municipality at all. In other states, the sale prices are submitted to the local assessor, but the information is not shared with the public.
In other states, it's optional to report the sale price on the deed. If the price is reported, the number will be viewable by the public. If the sale price isn't reported, then obviously, the public won't see it.
It's also worth noting that the disclosure of a property's sale price is a separate matter from the disclosure of any mortgages or deeds of trust on the property. In Texas, for example, Craig Smyser explains that,
“Sales prices are not listed in any publicly recorded documents nor is the sales prices shared with a governmental agency…If a mortgage is utilized in the purchase, the amount of the mortgage is publicly available in both the warranty deed and the deed of trust.”
The existence and amount of financing isn't always a direct correlation to the property's sale price, but it could be used to make some assumptions about a property's value in some cases.
How the MLS Can Help
In the states where property sale prices are not available in the public records, the only way to get your hands on accurate sold comps is through the Multiple Listing Service (MLS).
The MLS is a database that holds information on properties that are for sale and properties that have been sold within a state. Most states have several different regions with several different MLS databases, and anyone who wants to see this information in their region’s MLS has to pay an annual fee and hold a state-specific real estate license.
If a real estate investor needs to access several different MLS databases to obtain the sold comps within a particular state (if they are an out-of-state land flipper, for example), this can get very expensive and impractical. Not to mention, many investors don’t want the added responsibility and liability of holding a real estate license.
Non-disclosure states can present a serious obstacle for real estate investors without a license, so it’s important to know which states are non-disclosure states and which ones are not, and perhaps more importantly, how to get the information you need in a non-disclosure state.
3 Ways to Find Sale Prices in a Non-Disclosure State
Even though it may be challenging to find past sale prices in a non-disclosure state, that doesn't mean it's a bad state to invest in.
If a real estate investor decides to work in a non-disclosure state and, for one reason or another, doesn't want to deal with the ongoing costs and responsibilities of maintaining their real estate license, they could explore any of the three options below.
1. Work With Someone Who Has MLS Access
The simplest way to access the MLS without becoming licensed is to establish a relationship with someone who is.
Working with a licensed real estate agent can provide a number of benefits for investors. They can conduct due diligence, walk-through properties on their client's behalf, and understand an investor’s criteria and find deals that are a great match for them.
Since they have access to the price properties have sold for, they can also pull a list of comparables, which can be very helpful as an investor is determining how much they can offer for a property, based on how much similar properties have sold for in the area.
There are two drawbacks to this approach. To keep the agent motivated to help, an investor will usually need to pay them a commission on the properties they assist with. Additionally, if a real estate investor needs to access several MLS databases to cover several regions within a state, they may have to establish a connection with more than one agent.
RELATED: Should Real Estate Investors Get Their Real Estate License?
2. Use An Estimated Sold Price
An alternative approach is to use an estimated sold price.
Say three single-family residences could be used as comps for a property an investor is considering as an investment.
- Property one is 2,000 sq ft and is listed for $65,000
- Property two is 1,750 sq ft and is listed for $58,000
- Property three is 1,700 sq ft and is listed for $52,000
If these were sold properties, you can take the average square footage and divide it by the average price to get the average price per square foot:
Average Square Footage / Average Price = Average Price Per Square Foot
To determine a property’s market value, meanwhile, multiply the average price per square foot by the square footage:
Average Price Per Square Foot * Square Footage of Subject Property = Market Value
Disclaimer: For simplicity’s sake, this example doesn’t account for a lot of factors typically involved with analyzing a deal. For a more in-depth overview of how to run comps, check out this video.
If sold prices are not available, you can run the same kind of analysis using active LIST prices, meaning the prices people are asking for in the ads that promote their properties for sale. Then you can simply factor in a discount to estimate a sold price. The discount percentage may vary depending on what’s typical in the market, but 20-25% is common.
Using the same properties as the example above, it would look like this:
- The average square footage is 1,817.
- The average asking price is $58,333.33.
- The average price per square foot is $32.11.
- The discount percentage is 25% ($8.03) less than the average price per square foot.
- $32.11-$8.03 is $24.08 as a discounted price per square foot.
- $24.08 multiplied by the square footage size of our subject property (1,800) is $43,348.62.
- $43,348.62 is, therefore, the market value.
Click Here to Get the Spreadsheet
3. Look at the Assessed Value
Another way to estimate sold prices in a non-disclosure state is to look at the property's assessed value.
The assessed value is the local tax assessor’s opinion of what the property is worth. This number also plays a role in determining each property's annual tax bill.
Even though the assessed value of a property is easy means of valuation, it’s not always an accurate representation of market value. In some markets, these values are just flat-out wrong! When using this number to find the market value of a property, be aware that even though this gives some basis for the property’s value, it probably isn't telling the full story.
Summary
Real estate investors who work in non-disclosure states face a bigger set of challenges in determining property values and offer prices, because of the barriers to finding recent sales comps.
This doesn’t mean, however, that comparable data is completely unavailable or that an investor should not do business in a non-disclosure state. All it means is that they need to use some alternatives and be more resourceful at understanding property values in their area.
Sources
- Dornfest, A. S., Rearich, J., Brydon, T. D., & Almy, R. (2019). State and Provincial property tax policies and administrative practices (PTAPP): 2017 findings and report. Journal of Property Tax Assessment & Administration, 16(1), 43-130. Retrieved from https://researchexchange.iaao.org/jptaa/vol16/iss1/3
