Listsource, Yellowletters: % Equity

3 Replies

Hello,

How can Listsource/Yellowletters tell how much equity an owner has in their property? I did not think this sort of information was public knowledge. How accurate is their equity information?

Equity is often based on year of purchase, and mortgage info. It is public information if a house has a mortgage lien and how much that mortgage was originally. It will be noted if the mortgage was paid off as well.

Usually counties dont leave that info as accessible as the property tax records, but they are public. When you do a title search they show up.

I can't say to the accuracy of the info, since the information is hard to get. One way to validate it is to buy maybe 10 listings and go do a title search manually and validate the information.

List services, and property data providers, calculate (estimate) equity using two computer models - value and debt.

First you need an estimate of the property value, commonly known as an automated valuation model, or AVM. The most well known of these is the Zillow Zestimate, but they've been used by banks and others for years. This is also your first point at which some degree of error can be introduced, as AVM's are typically based on public record sales, and public records don't include attributes like view, curb appeal, and other less tangible items that can effect price. AVM's therefore tend to be very good in large subdivisions of homogenous homes with regular sales activity, and get increasingly bad as surrounding homes get more diverse, or there are fewer sales on which to base the estimate.

On the debt side, each loan made against a property is public record, including the loan amount, and often, the basic terms of the loan are available as well. The trick then becomes figuring out which loans are still open and outstanding (using either a model or by sorting through reconveyances, or both), and what the balance on those loans is (not public record at all, can only guess). Where the models have the most trouble is with home equity lines of credit (HELOCs), as that loan could be open and have a zero balance, or the borrower could have used the entire line.

Overall estimated equity is a great tool for narrowing the field to properties that are likely underwater, owned free and clear, fully encumbered, etc, around which many real estate investing strategies, including most creative financing strategies are based.

Originally posted by @Sean OToole:

List services, and property data providers, calculate (estimate) equity using two computer models - value and debt.

First you need an estimate of the property value, commonly known as an automated valuation model, or AVM. The most well known of these is the Zillow Zestimate, but they've been used by banks and others for years. This is also your first point at which some degree of error can be introduced, as AVM's are typically based on public record sales, and public records don't include attributes like view, curb appeal, and other less tangible items that can effect price. AVM's therefore tend to be very good in large subdivisions of homogenous homes with regular sales activity, and get increasingly bad as surrounding homes get more diverse, or there are fewer sales on which to base the estimate.

On the debt side, each loan made against a property is public record, including the loan amount, and often, the basic terms of the loan are available as well. The trick then becomes figuring out which loans are still open and outstanding (using either a model or by sorting through reconveyances, or both), and what the balance on those loans is (not public record at all, can only guess). Where the models have the most trouble is with home equity lines of credit (HELOCs), as that loan could be open and have a zero balance, or the borrower could have used the entire line.

Overall estimated equity is a great tool for narrowing the field to properties that are likely underwater, owned free and clear, fully encumbered, etc, around which many real estate investing strategies, including most creative financing strategies are based.

 Sean

tools you have on your website are very useful in analyzing the value, equity etc. 

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!