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Realtors working to develop foot traffic index

A gauge of visits to homes on the market could become a leading indicator of sales, perhaps preceding signed contracts by as many as 45 days.

December 23, 2012|By Lew Sichelman

In an effort to get the earliest reading possible on the housing market, economists at the National Assn. of Realtors are developing a national index that measures foot traffic, or visits to houses for sale.

NAR already has an index for pending home sales, which measures signed contracts. It is a forward-looking indicator that is roughly 30 to 60 days ahead of another key market measurement, existing home sales. A sale is listed as pending when a contract has been signed but the transaction has yet to close.

An index based on the number of showings to prospective buyers could be "an early, early indicator," perhaps preceding signed contracts by as many as 45 days, says Ken Fears, NAR's manager of regional economics.

NAR is able to track foot traffic through SentriLock, an association-owned property access control system. Each lockbox stores the number of times it has been opened to allow visitors to tour the house. Those data are used to build a weighted index that measures the percentage change in showings from one month to the next.

To date, Fears has developed showings indexes for 183 local markets where SentriLock is the prevalent lockbox in use by real estate associations. But he says he needs even more local data before a national standard can be developed. "We're still trying to get used to the interplay with pending sales," he says.

Statistical tests show a strong correlation between showings and contracts. An increase in visits in one month tends to predate a jump in signings in the next month or two. Similarly, changes in the showings index tend to precede sales, or closings, "by roughly two to three months," Fears says. Of course, it also follows that if doors are opened fewer times, there are fewer resulting contracts and sales.

The data have some shortcomings. One obvious weakness is the geographical coverage. The data sample from SentriLock comes from only a small share of the total number — some 800 — of real estate boards nationally, Fears says. Consequently, the measure can provide insight into only a relative handful of individual markets.

But, Fears says, as SentriLock's market coverage expands, the data will become more representative of national trends, and a weekly index of showings could become a leading indicator.

Know the buyer's money source

Do you know where the cash is coming from to buy your house?

If you have even the slightest inkling that the money is coming from illicit sources, you have a duty under federal money laundering laws to report your suspicions to the authorities. If you don't, you could be considered a party to the crime.

Money laundering is defined as the process of making the proceeds of unlawful activity appear legal, so their illegal source cannot be traced. With increasing frequency, criminals are using their ill-gotten gains to buy houses and then sell them to convert the asset back into cash.

According to Treasury Department officials, converting millions of dollars into a number of smaller transactions — a process known as "smurfing" — is the No. 1 ploy for hiding dirty money in the housing market.

Generally, real estate agents and lenders are required to report any misgivings under the Bank Secrecy Act. There could be a big penalty if they don't.

But sellers also can run afoul of the law if they suspect something is amiss and don't tell local law enforcement or the FBI, said Michael Rosen, a policy advisor in the Terrorism and Financial Intelligence office at the Treasury Department, at a recent real estate conference.

When a transaction varies from the norm, there is an increased chance the deal is subject to anti-money-laundering laws. One key red flag for sellers is the source of funds for all-cash deals. But if the buyer asks you to "do me a favor," your antenna should wiggle as well.

In one case that Rosen described, a buyer who said he didn't want his parents to know he was purchasing such an expensive house asked the seller to lower the price and accept the difference in cash under the table from the buyer. Such a scenario needs to be reported, if not by the agent, then by the seller, Rosen said.

"When there are prominent red flags that signal criminal activity is afoot, a jury may infer that a defendant deliberately ignored facts that should have been obvious to a reasonable person," Rosen said. "It's not whether you know of criminal intent. It's a case of you should have known."

Distributed by Universal Uclick for United Feature Syndicate.

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