Price indications - agents cannot mislead

by Alistair Helm in ,

I was rather pleased to see this tweet from the Real Estate Agents Authority (REAA) today:

The statement is incredibly valid and prompted me to write as over the last couple of weeks I have heard from a number of readers about their frustration about the price search parameters on web searches on both property portals and real estate company websites.

An agent not only has to be accurate and must not lead around price expectation of sellers when discussing with buyers at open homes but also should ensure this mis-representation does not occur on web searches which are so critical given the vast majority of buyers search for property online.

To be specific the REAA on their website sets out the "Expected behaviour of Real Estate Agents"

Here are the statements that are pertinent to this issue:

Agents can’t withhold or give inaccurate information about a property

The agent is in contract with the seller and will always work on their behalf. However, they have an obligation to treat the buyer fairly, including not withholding, or giving inaccurate, information.

(I think this is important in the context around not withholding information, an accurate price expectation is information which when requested must not be withheld)


Agents can’t make unsubstantiated representations

Under the Fair Trading Act, it is an offence for an agent to make an unsubstantiated representation about a property. This means that an agent can’t make a representation about a property without having the evidence to back it up.

Agents must have reasonable grounds for making a statement (written or verbal) about a property - before they make it.

(I think that as each property requires a market appraisal undertaken by the agent for the vendor at the time of listing which provides an indicative sale price / price range then under the Fair Trading Act the evidence to back up any reference to price needs to reflect the evidence of this appraisal so the two should be aligned and therefore the search price online should be substantiated by this evidence)


Agents can’t mislead buyers and sellers about pricing expectations

The advertised price for the property must be in line with the pricing expectations the agent has agreed with the seller.  The agent should not mislead the buyer about the seller’s pricing expectations.

(I believe as I have stated that the search price range online is as valid as response to setting buyer expectation as is a verbal communication)

Auckland property - a price too far!

by Alistair Helm in

I read with interest the weekend opinion article by Duncan Garner in the Dominion Post titled “I’m an instant millionaire - but can’t afford my house”.

I have been following Duncan’s commentary recently on his radio show and online - his focus is the un-affordability of Auckland property. He comes with a great perspective having lived in Auckland for only a couple of years, moving up from Wellington and thereby being able to make relevant comparisons. I respect and admire his personal crusade as he is right when he says “If you want to buy cheap (and "cheap" in Auckland is $500,000) you have to head way, way out west - or seriously south towards the Bombay Hills”. Auckland property has risen in value by 37% in the past 3 years, 44% in the past 5 years and 83% since 2004.

However I believe there are some alternative perspectives to his views to both the problem and the perceived solutions as well as some corrections to some of his assertions. Here are my responses to his article.

Duncan states that “the value of my home soared by 58 per cent - up by $268,000 over just three years” - this is a gross over simplification. The value of his house on paper will only be accurately assessed by a property valuer. The quoted 58% increase refers to the median increase across all properties in the New Windsor suburb, the individual local authority capital valuation for his property will not be made public until the 10th November, even then that figure will only be a computer generated valuation. The true scale of the increase in value of any home is only ever realised when you sell. Every other number is simply speculative.

Duncan makes the comparison of Wellington properties. Far from selling way above their CV, they are actually selling below their CV. No surprise here. The fact is whereas Auckland sale prices have increased as cited above, Wellington have barely moved. Wellington property has only risen in value by 4% in the past 3 years, 4% in the past 5 years and just 45% since 2004. The local authority assessed Capital value is based on recent sales and therefore if recent sales prices don’t experience inflation then nor does CV’s.

The contention of Duncan’s article is that the Auckland property problem is one of supply and demand. In someway’s in my view he is right and in someways he is wrong. Demand is what is driving the property market. Without demand there would not be competition and that is what inflates prices. However the supply problem is less significant.

If Auckland had an acute shortage of property driven by the rise in population the issue would be seen in genuine demand for any housing, right across the board - property for rent and for sale. The fact is there is not excess demand for rental property as demonstrated by the inflation of property rents in Auckland rising by 9% in the past 3 years, 20% in the past 5 years and only 35% since 2004. These levels are only barely above inflation and therefore show no impact of demand.

Auckland’s property price inflation is the result of speculation and an overall increase in the ability on the part of property buyers to pay that extra dollar to buy the house they want to live in or invest in. Auctions for property that see active competitive bidding are not attended by people without a house looking for somewhere to live. They are populated by people with a house looking to buy another house to replace their current one or a further property to invest in. These buyers are making decisions that are a mix of rational and emotional triggers that drive then to bid an extra $10,000 / $20,000 / $50,000 more than they thought they would. That sale price then becomes the new ceiling by which the next property is launched onto the market and the inflationary pressure persists. 

The fuel for this property price inflation is a ready access to funds and cheap funds. The past 5 years have seen the lowest mortgage rates that NZ has ever seen in modern times and whilst the recent LVR policy has stifled the market to some extent, the demand has simply switched from property owners to investors.

Duncan is right when he says that “Auckland needs to build 13,000 houses a year to keep up with demand - this year it won't crack 7,000, and apparently we're booming” - we need more houses. However this short fall in construction is not the problem and will not be the solution. The solution lives in the financial component of property market - the access to and the cost of finance. That is what has driven this recent property price boom as it did between 2002 and 2007.  

One property does not a market make!

by Alistair Helm in , ,

Last week somewhere around 1,400 homes were sold across the whole of New Zealand. In Auckland that number amounted to around 530. The vast majority of those properties would have been sold in a traditional manner with a face to face protracted negotiation between a seller and a single buyer facilitated by an agent eventually leading to a signed unconditional agreement. Most of those properties would have likely been on the market for many weeks or months before the buyer approached the agent and started discussing an offer. None of these properties were of any interest to the media as none of them makes for a headline story.

The single property sale from last week  that did make an interesting story and made the front page from among these 1,400 was the sale at auction of a Grey Lynn villa which sold for $3.28 million and as the NZ Herald rather simply implied "a staggering $1.1m leap since 2012"

The fact is that this property did sell for $2.12 million in April 2012. It was at that time a brand new house - a beautiful reproduction of a Bay Villa - a large house with a pool, but without much garden and no garage. I took the opportunity to view the property at the time and could not fault the craftsmanship and attention to detail. It was located interesting right next-door to a rather shabby rental property.

Just over 2 years later and without any improvements or additions (although with a considerably improved neighbouring property) it sold at auction for $3.28 million.

I did not attend the auction and I would love to hear from anyone who was there. My assumption though is that there was significant competitive bidding that pushed this price to this winning bid.

The fact is as I am sure you all know, is that this property sale is not reflective of the market. There will always be, just as there have always been, 'Outliers' - property sales for which conventional wisdom and financial logic shoot straight out the window.

The sale of this property at this price says nothing about property prices in general and certainly cannot drive any view that this is indicative of prices in Auckland or in Grey Lynn. There is though something that this sale does in my opinion tell us.

It shows us that in Auckland we have a global city, a vibrant dynamic city. A city that is attractive to talent and wealth. A city where those with capital to invest see a bright future. This property sale is a more important pointer to the future economic health and wealth of this country than to any view as to trends in the property market.

This property was bought at a price that I would challenge anyone to try and convince me was not far more than any respect registered valuer would have apportioned to the property. A significant amount over the valuation. That amount is the result of a buyer with the capacity to pay and the willingness to pay "what ever it takes" to secure this property. This is a unique property and the buyer wanted it and was prepared to pay that price to get it to the exclusion of anyone else. At that price level this was not a pre-approved mortgage borrower worried about servicing a large mortgage. I would believe this buyer  has the financial wherewithal to buy this outright with no borrowing. This is the confident decision of a buyer who knows what they want and they can afford to pay that price. This sale is a great indicator for the future of our country and has nothing to do with the property market.

Same data / different story

by Alistair Helm in ,

I remember hearing somewhere that it was bad news that sold newspapers - apparently not so when it comes to property!, or so you would imagine if you read the recent headline from the NZ Herald detailing the September results from Barfoot & Thompson.

The headline: "Auckland house prices rise to a record, as more million dollar homes sell".

Reading the article after I had reviewed the numbers from Barfoot & Thompson's report on their website got me thinking. How different the article and quite possibly the headline might have been if the reporter had reviewed the data rather than just the press release.

Here are the first 2 paragraphs of the article as published:

Auckland house sales rose in September, snapping three previous months of decline, as more houses with a $1 million price tag pushed the average house price to a record, according to Barfoot & Thompson.

The number of sales rose to 959, from 909 in August, although below the 1,105 sold in September last year, Auckland’s biggest realtor said in a statement. The average sales price rose 3.8 percent to a record $738,876, and was 12 percent above last September’s average house price.

No let me using the source data from Barfoot & Thompson September report and provide an alternative 2 paragraphs:

Auckland houses sales continued to fall in September, the 8th consecutive months to see sales fall on a year-on-year comparison. Significantly sales of properties in the $400,000 to $600,000 price range saw falls of 22 percent.

The number of sales at 959 were 13 percent below September last year, Auckland’s largest realtor said in a statement. The median sales price continues to go sideways at $635,000, a trend that has been seen for 4 months now since a peak of $645,000 was reported in May.

The facts are simply the facts. It is just that the NZ Herald decided to copy and paste the press release from Barfoot & Thompson and I chose to spend a bit of time looking at the key facts. 

When it comes to reporting on the property market and presenting facts there are some key points to bear in mind that are critical to helping make a more informed decision as to the article:

1. Sales data is only relevant when compared with prior year. Property sales are seasonal. There is no value in comparing one month with the prior month unless it is seasonally adjusted data. Here is the representation of Auckland sales by Barfoot & Thompson to demonstrate the state of sales:

2. Average sales price is not an accurate and trusted measure in property sales reporting. The range of property for sale especially to the high end of value can have a significant impact on the average price. Let me show you. Lets say that the September 2014 sales had been the same - 959 but instead of 161 sales over $1m there had been just 146, 15 less properties sold over $1m (that 146 sales is how many properties sold for over $1m last September) and then lets say that an extra 15 properties sold at say $700,000. This scenario would have seen an average price of $710,000 - that is $28,000 less than the actual all for the sake of 15 properties! - that is how misleading it is to quote average prices.

3. Median price or better yet the Stratified median price is the most respected and trusted method of tracking house prices. Here is the median price for Auckland properties sold by Barfoot & Thompson measured by median price which shows the levelling off.

4. Real estate companies have a vested interest in presenting favourable articles based on statistics. They want to be seen as selling more than other companies or reporting higher prices or indicating that it is a great time to buy or a great time to sell or that there is a shortage of listings or a massive selection of listings. All of which as you can judge are often conflicting situations, 


As a final thought, researching the quote that 'bad news sells newspapers' I came across this article from The Guardian ( a media source I trust) who in a 2007 article on just this subject made the observation "peoples' interest in news is much more intense when there is a perceived threat to their way of life". It got me thinking - of course rising house prices, especially at the level they have attained in Auckland are what might be thought of as a "perceived threat to their way of life" - so maybe in the case of property news good news is actually bad news and the team at the NZ Herald are the smartest guys in town!

Property price searching online needs to be more accurate

by Alistair Helm in ,

A recent appeal against the findings of the Complaints Assessment Committee before the Real Estate Agents Authority on the subject of online search pricing for property highlights a major issue which in my opinion should have been addressed long ago, as it continues to frustrate buyers as to price expectation of property on the market.

Here is the heart of the issue. Well over 1 in 4 of all properties on the market today are advertised without a price, in Auckland that figure is closer to 1 in 2. That means in Auckland there are 3,485 properties for sale with no detail in the listing as to any guidance of price expectation. Buyers often comment that such properties are deliberately avoided as they hate the uncertainty and risk associated with discovering properties only to find it is way outside their budget due to the price search bracket on the website.

The decision not to display a price on a property is in the view of real estate agents due to the fact that in their words “the market will decide the price”. That is entirely true, as the sale price has no bearing on any displayed price or indicative price. The selling price is the agreed price based on the willing seller deciding to accept the offer of a capable buyer prepared to offer such a price. However the market decides the selling price for all properties, not just those with no price indication.

This problem confounds buyers and is at the heart of this appeal to the REAA Complaints Assessment Committee. A property should only be displayed in search results on a website within the range which includes the assessed price. That is the price which the REAA requires every agent to complete and submit to the vendor when listing the house. So if the agent assesses the house at $625,000 then the property should feature in a search range of $600,000 to $650,000. Not in a search range of $550,000 to $600,000 nor in a range of $650,000 to $700,000.

In my opinion one of the issues that results in properties appearing online within too wide a search price range is that real estate websites whether aggregator property portals or real estate company websites provide too wide a price range in the search filters and should refine their search process to reflect the needs of buyers, not play to the marketing tactics of the agents.

It should be required of suchwebsites that increments of price ranges be more narrowly defined so that buyers can input their budget and expect to see properties displayed which based on an agents appraisal would likely sell within that range

Let's look at this case in point and through that see exactly how this situation arises within the industry’s approach to property marketing. This particular appeal received publicity in the NZ Herald recently and concerned a Harcourts agent who listed a property in August 2012. The property was appraised with a price range of between $880,000 and $980,000 with the vendor expressing a clear opinion that they wished to achieve a sale price of $980,000.

Now this is the first issue I have. The Real Estate Agents Act enforced through the REAA requirements of Agency Agreements for selling a property requires the following:

A written market appraisal: This is the agent’s best estimate of the price they expect your property could be sold for, based on sales and prices for similar properties in your area or a similar area.

The best estimate of the price - not a rough guide with a range of $100,000 amounting to more than a 10% variance. Reading the particulars of this case clearly the agent chose to provide a range that happened to stretch from the agents best estimate of $880,000 to the vendors expectation of $980,000 - a clear disconnect which would be bound to lead to issues between agent and vendor.

The property was listed with an auction method of sale with no price displayed on the web. The listing had a search range of $750,000 to $950,000. 

Here is the second major issue - the agent provided a market appraisal of $880,000 to $980,000. Why then did the agent list the property on the web with a search price of $130,000 below their appraisal and $230,000 below the vendors expectation?!

The reason is to be found in the evidence to the REAA enquiry provided by the licensee who stated in the submission that:

It is industry practice to load a property within a certain price bracket. Generally, this price bracket is quite wide, in the vicinity of $200,000, as this allows person searching for a property within that region to view properties that are above their price search criteria and associated properties below their price search criteria. This is useful to the vendor as it allows a wider range of parties to view their home and can often generate interest in different price brackets from parties who originally had a lower or higher price that they wished to spend.

The licensee went on  to state:

Price search criteria are not the price of the property and they have no bearing on the final value - their use is purely to assist prospective purchasers who might use price search criteria to assist in narrowing their search results. I also make the point that only a small sample of buyers indeed search for property using price search criteria. Rather my experience would suggest they are more intent on searching for property based on key criteria of suburb and amenities such as bedrooms.

This assertion by a real estate professional is frankly staggering and I would have thought that the REAA would challenge this view that a $200,000 range is acceptable, and to state that the intent is to generate interest fromm parties where the property is outside their intended spend. To then go on to state that buyers don’t use the filter criteria on websites is hardly credible.

All the main real estate portals and leading real estate company website have price ranges of $100,000 between $500,000 and $1m, below $500,000 some operate with increments of $50,000 and over $1m the increment rises to 200,000. 

In my view it would be of great benefit to all buyers to have the listing price search in increments of $50,000 right up to $1m. Leaving the user to refine tightly their budget criteria to within $50,000 or to widen it to $100,000 or more. Additionally properties should be loaded on such sites with a single price which whilst not displayed, should accurately reflect the market appraisal presented by the agent. In this way the buyer would get to see properties that meet their budget as opposed to being shown properties that the agent judges that they should be enticed into viewing and end up being sold  for far more than their budget or the price search criteria.

As in this case where this property would have been seen by prospective purchasers who may have been searching for property between $700,000 and $800,000 due to the search range of $750,000 to $950,000 when in fact the vendor was not prepared to entertain any offer less than their view of the value at $980,000 shown by the fact that the property passed in at auction at $880,000 and a subsequent offer of close to $900,00 failed to secure a sale.

Property statistics can be misleading

by Alistair Helm in

When the news media report that the median house price in Auckland has risen by 13% over the past year, from $562,000 last March it's now $637,000 - that’s an increase of over $6,000 per month! 

This type of property news infers that property values are rising, and rising fast; as it's getting more expensive to buy houses - that would be a good interpretation - right?

Well actually no. You cannot make that inference. To hear that the median sale price is rising does not infer values are rising by the same amount. 

Now you may consider that I am arguing semantics. However I regard the difference between the rise in property value and the rise in median sales price highly significant. A significance that too often seems to be ignored or glazed over for the sake of a good headline.

The median price is a statistic calculated from the aggregated data of all the properties sales in a month in an area - a suburb, a region or the whole country. It should not be taken as an indication of the likely trend in value of a property in that self-same area.

Each year just less than 5% of all properties are sold - that is 1 in 20, which tends to amount to less than a handful of a properties on any given street around the country. The fact is that these properties recently sold might not be representative of all of the properties on the street in general.

For example, if I were to say to you that the median price for your street had doubled in a year from $300,000 to $600,000 would you think that the property market had gone mad and you were sitting on a gold mine? - sadly not. In this purely hypothetical example the likely fact was that the 3 houses sold last year were actually all apartments in that development at the end of the street and all the sales this year were of 4 bedroom properties along the street - you get to see the problem with the data?

This is in my opinion, part of the problem we have witnessed over the past few years in the inner city suburbs of Auckland. Suburbs that in some cases have seen rises of over 70% in 5 years. In these suburbs the properties being sold are in the main traditional 3 or 4 bedroom homes on 400 to 600m2 sections. So can we say here that values have risen by 70% in these suburbs as the median price indicates?

The truth is that rather as in the previous example, were the comparison was between houses and apartment, in these suburbs the comparison is more likely to be between un-renovated properties and renovated properties.

Look down any street in the inner city suburbs of Auckland and you will see the impact of gentrification and many hundred’s of thousands of dollars of renovation costs.

Here is a simplified summary of what has been going on. In 2009 and 2010 smart, savvy buyers (investors, developers and capable homeowners) started buying up ex-rental properties in these suburbs for prices around the $700,000 to $900,000 range thereby establishing the then median price for the majority of sales in these suburbs. Gradually over the past 4 years these properties have been renovated and placed back on the market following renovation projects costing anywhere between $200,000 and $600,000. The properties then have been selling for between $1,250,00 and $1,600,000 making a healthy return for those players in the market and in the end impacting the median sales price driving it up from the $800,000 range to $1,400,00 range a 70% rise. 

These renovated properties whilst in the main are still 3 or 4 bedroom properties on 400 to 600ms sections, however they are in many respects new homes as effectively all that remains of the original property is the floors, walls and roof. These improvements have fundamentally changed the inherent value of the property - as you would expect when a renovation costs averaging $400,000. But it is wrong, and does not follow that all properties in these streets / suburbs are now valued in the range of $1,400,000.

Here's a snapshot of inner city renovations of the past few years - then and now:

Further proof (if needed) of this situation, you need not look further than a couple of recent profile articles from the NZ Herald highlighting renovations in the inner city suburbs of Auckland

Grey Lynn - purchased Oct 2010 $604,000

Renovaton - new bathroom, new kitchen, redecoration

Sold 2014 $835,000

Ponsonby - purchased 2002 $620,000 

Current rating valuation (based on QV computer generated valuation model) 2011 $980,000

Extensive renovation

Auction 25 May - price expectation around $2,000,000


Now there is no doubt that these properties were rightly valued as a result of the selling price on the day. That was the price the winning buyer was prepared to pay for them, however does it mean that all of the other 80+% of properties in these suburbs have also risen in value by 70% ? - clearly not.

However as the saying goes and as all real estate agents are keen to observe - ‘A rising tide lifts all boats’. The problem illustrated here is that the statistic of median price is being misinterpreted as valuation.

The other compounding factor is that the source of property data on valuations, QV actually rely on sales price data to establish valuations. There computer based algorithm utilises recent sales data of similar properties (judged by size, not standard of refurbishment) to establish a current valuation. This valuation is then the benchmark by which they judge the sale price and that variance drives there monthly property vales trend analysis.

It is only a registered valuer undertaking a full assessment of a property through an on-site visit and evaluation that can accurately assess the true market value of a property.


Is there a better way? That is the question

Clearly a property sold after significant renovation or alteration cannot be judged to be representative of all properties in an area, whilst a property carefully maintained and resold after 3 years would be representative. Maybe this is the question that needs to be added to a more comprehensive data set collected by the Real Estate Institute. Through their comprehensive process of recording all sales by licensed real estate agents they can then provide a more accurate and representative price indicator so we avoid the inference that median sales prices are judged to be the same as property values, and in so doing improve the reporting of true values.