Property musings on Facebook - 24 October

by Alistair Helm in


Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.

 

1st home buyers should look to apartments


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!


Auctions now judged to include pre and post under-the-hammer-sales

by Alistair Helm in


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Some months ago I wrote an article entitled “When is an auction not an auction?” highlighting what I thought was a misleading practice of the reporting of completed auction sales which were not sold under the hammer.

At the time I highlighted the advert published by Barfoot & Thompson which proudly proclaimed “593 Successful Auctions. All in April, all in Auckland, all by one company” That style of advert has continued to be published each month since then confidently stating the number of ‘successful’ auctions as the sum of those sold under the hammer, together with those properties sold pre-auction and those sold post-auction.

That article attracted a couple of encouraging comments supporting my view that the advertising was misleading. Encouraged by these comments and my own sense of principle I decided to file a formal complaint to the Advertising Standards Authority (ASA)  regarding the advert and subsequent adverts.

I filed a complaint stating that under the Rules and Code of Ethics these adverts were misleading and likely to deceive consumers into believing that the number of 'successful' auctions were more than the facts show.

The Complaints Board of the ASA judged that there was a case to answer and the board deliberated over the claim at a session held in August. The outcome of that hearing is now public record and accessible on the ASA website.

The outcome was that the complaint was not upheld

I was disappointed in the findings of the board. I respect the process and the organization. i do not intend to appeal the decision. The complaint is public record and the full decision can be read via a download file of the full written decision, if you are so inclined.

The summary of the decision of the board in not upholding the complaint was that "the advert should be read as a whole and on an objective basis, not only taken on part". That is to say they judged that the full analysis of the sales conducted pre-auction, under the hammer and post-auction were satisfactory to provide explanation to the headline and therefore the headline was not misleading.

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When is an auction not an auction?

by Alistair Helm in , ,


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The Real Estate Institute of NZ stated in their April property report press release that “Auctions are progressively becoming the favoured sales method in certain centres”. They went on to say that properties sold by auction represented just under 1 in 5 in April. In Auckland which they described as “dominating the auction market” 37% of all sales were by auction.

In Auckland their figures stated that 1,045 properties were sold by auction last month. As we all know Barfoot & Thompson is the largest real estate company in Auckland representing around 40% of the market. As their advertisement in a recent property magazine states they reported 593 successful auctions in April. That would mean that Barfoot & Thompson represented 56% of all Auckland auctions which clearly shows that this is without doubt their favored method of sale.

 

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However if you read into the advert a little deeper, the headline figure seems to be somewhat misleading.

The facts state that only 410 properties sold under the hammer. To this final total of 593 “Successful Auctions” they have added 15 properties sold before the auction; 25 properties sold on the auction day (but not under the hammer) and a further 143 sold after the auction (and not on the day of the auction).

I was interested to see if I could find a definition as to what is an auction in the context of real estate sales. I chose to turn to the government body tasked with regulating and administering the industry – The Real Estate Agents Authority. In their auctions information sheet accessible as a download pdf document on their website they state:

 

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My clear interpretation of this is that a property that is sold in a private agreement between a buyer and a seller after the “passing in” of a property at an auction is not an auction sale, despite the fact that the property was marketed as an auction. The same goes for properties sold before an auction. A successful auction is defined and assumed to be an unconditional sale on the fall of the hammer in an open process.

Therefore rather than the claimed 593 “Successful auctions" by Barfoot & Thompson in April, the reality was that just 410 successful auctions were achieved in the month. It further means that of the 707 completed sales which had been marketed as auctions in the month – 58% were sold successfully at the auction; whereas more than 4 in 10 of the properties marketed as auctions did not sell “under the hammer”.

The fact is that only Barfoot & Thompson publish this degree of insight into their auctions, I congratulate them for their openness. One only wonders as to the number of real estate companies who submitted statistics to the Real Estate Institute stating for auction sales in April making up the total of 1,045; as to how many actually sold under the hammer as a true auction. Maybe, just maybe, the statement made by REINZ should be restated as “Property marketed as auctions  is becoming the favoured marketing strategy in certain centres”.

 


Should a real estate agent be paid $1.5m a year in earnings?

by Alistair Helm in ,


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This week Barfoot & Thompson in celebrating the achievements of their Top 25 salespeople detailed that their top 3 agents collectively sold a total of more than 300 homes in the past year. At an average sale price of $721,000 these sales generated a total transaction value of over $200 million from just the top 3 agents at the largest real estate company in Auckland.

Now to my mind it is not important to know who these people are. They are undoubtedly successful and certainly valuable to Barfoot & Thompson as they accounted for 3% of the total transaction value of the company last year. Three people from a total of over 2,000 who are self employed contractors operating under the licence of Barfoot & Thompson.

Doing a simple calculation based on the commission rates of the company and knowing a little of the commission split between the individual agent and the company leads me to believe that each of the 3 top agents earned around $1,500,000 each last year.

Three of the top agents working for the largest Auckland real estate firm earned an estimated $1,500,000 each last year from selling real estate.

Now I will accept that these agents do employ assistants to help with the work load; after all 100 property sales a year equates to two sales a week and that is far above the average for the industry at large, at just 8 sales in a year. So let’s allow $150,000 of costs for assistants – that still means that these agents are earning around $1,350,000 a year.

That earning power puts them well inside the top 20 pay of CEO’s in NZ as referenced from the 2011 NZ Herald CEO Pay Survey.

 

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  • Earnings of $1,350,000 a year is the same as that earned by Simon MacKenzie  the CEO of Vector, a leading infrastructure company managing electricity, gas and fibre optic networks with over 500,000 domestic and commercial customers, it manages over $5.5bn of assets delivering an operating cashflow of $390m.
  • Earnings of $1,350,000 a year is over $100,000 more than Don Braid the MD of Mainfreight a NZ based global logistics company with sales of over $1.8bn employing 5,000 people. In that financial year the company made $26m in profits.
  • Earnings of $1,350,000 a year is over $350,000 more than Russel Creedy the CEO of Restaurant Brands operating 177 stores with 3,700 employees across NZ with sales of over $300m. In that financial year the company made $26m in profits.

Running a complex multi-million / multi-billion dollar business across NZ and the globe is a challenging and demanding role with the responsibility for thousands of employees, customers and suppliers not to say the accountability to a board and shareholders. Top CEO’s are paid for performance and the demands of the job. They are in demand and have global value.

Selling houses is not, let us be honest that demanding. You have a handful of customers at any one time, you have virtually no suppliers or employees. You don’t have shareholders or a board of directors to report to. Bizarrely the people who monitor your performance share in your success and yet they do not directly contribute to that success, save only for the real estate license that a salesperson at Barfoot & Thompson operates under.

I do not blame these top agents for earning $1,500,000 a year, that is just the fact of the industry. Further I do not lay blame at the feet of Barfoot & Thompson, the same situation exists for a handful of top agents at Harcourts, Ray White, Bayleys and others, each earning well in excess of $1m a year. It is just the way the industry is structured, as self-employed individual agents are incentivised through commissions. The structure of the real estate industry creates this situation.

I think the real estate industry is inefficient, I think it is in need of change. Selling a house is not a unique skill, nor a highly demanding skill. I am convinced that all of the 100 odd houses sold individually by these agents in the past year could just as well have been sold by any other agent. It is just that these agents have created a "marketplace" that they control, not though any illegal means, simply the structure of the industry allows them to be so effective and dominant.

The core fact is that these top 3 agents do not have unique skills that allow them to earn in 7 days what the average agent earns in a year! There is something wrong with this industry when these disparities exist and the consumers of the services of this industry are being stung with this cost structure.

 


New iPad app from Barfoot & Thompson

by Alistair Helm in ,


Auckland's largest real estate group Barfoot & Thompson this week launched an iPad app that I think is a great piece of work.

It works on the principle of keep-it-simple and let the technology work for the user instead of getting in the way. I would judge that it is the best property iPad app developed in NZ and an equal of some of the best I have seen worldwide.

However having lauded it with such praise, I don't want to go much further before stating a major problem with it.

It is a property search tool that only shows listing from Barfoot & Thompson agents. Now that may well be 40% of the listings in Auckland, but for any property hunter, what value is there in only seeing a fraction of what is on offer to buy. Just as in the early days of the web, buyers had to trawl through each website of each agency to see what was on the market and boy did they get frustrated. Trade Me Property & Realestate.co.nz came along and provided the solution, all properties on one site.

So aside from this issue lets look at the beauty of this app built by Jandal software (who by the way also built the ASB Property app).

1. The focus is on location as the priority – very smart focusing on the inherent GPS capability of mobile devices (Trade Me Property iPad app does not prioritise this). You can easily zoom in and out and the speed of response is Ok, not lightening fast but Ok. There is a small issue that when you zoom out you get no clustering of listings and clicking on a pin at a resolution of the whole of Auckland shows individual properties. The Realestate.co.nz app does a much better job of clustering. Also I wonder why the blue location finder icon that tells you where you are disappears when you first move the map – may be a bug that needs fixing.

2. Open homes are great – find the ‘layer’ icon and you choose to show open homes within the next hour / day / all time – simple and beautiful with open homes shown with a great corporate B&T logo.

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3. School zones are one of the highlighted features of the app and the execution is great. On the ‘layer’ icon choose to show schools, choose a school and tap the ‘zone’ and you get a clear boundary demarcation of the zone for that school. This is one of those ‘must haves’ of an Auckland property search tool and congrats to Barfoot’s for delivering this.

4. The individual property listings are prioritised to show off full screen images which look great. Swiping through photos is entirely intuitive and a joy to do! Extra tabs deliver property info, videos and floor plans. Here is a question though, why do Barfoot not mandate the provision of floor plans? Floor plans are a real benefit to buyers and providing them would really deliver a point-of-difference for the company.

5. There is though a glaring hole with the app in regards to functionality, and it is the same functional shortfall that befalls the Realestate.co.nz app – you cannot save properties as favourites and sync those listings between the web and the app. There is also another very useful but missing toolset that I thought would have been included and that was social sharing – you can email a listing to a friend, but no such luck sharing it to Twitter of Facebook.

So overall a great piece of work from a user experience point of view – but I come back to my earlier question, will it be popular given you only ever see a portion of what’s for sale?

Now Barfoot & Thompson could fix this. They could access the Trade Me API and deliver all listings in an area straight into the app. The API is open access, equally Barfoot’s are a big customer of Trade Me which would easily garner support from Trade Me for such an initiative. In the US many branded real estate company apps do exactly this – show all listings.

I suspect many of the competing companies might not like this, but to be honest what’s the problem? – if their listings are seen then that is good for their vendors.

Maybe Barfoot’s would judge that sharing the app with competing listings is not in their best interest, but then again who is the client? I am sure vendors would be happier to have a smart app being used by tens, if not hundreds of thousands of Aucklanders rather than an app being used only by Barfoot agents and a few people who don’t know the app doesn’t show all the listings.

So there is the challenge to Barfoot’s – be bold, be a leader and make your app the definitive app for Auckland property finding and build your brand, your respect and your business.


Golden rule of advertising - never apologise?

by Alistair Helm in


I was quite literally taken aback when I saw this poster on a street along from where I live in Central Auckland.

A real estate company; the largest Auckland real estate company apologising (if I am reading it correctly) for increased popularity and thereby by insinuation for high property prices in the local area!

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I would say that is a risky marketing strategy. For whilst in my interpretation, what they may well be trying to say is that as a function of their success in selling property locally the suburb has become incredibly popular.

I might suggest that what it conveys to observers of the poster is that the company is in someways smug about riding the property wave of demand (and profiting from it) rather than taking the opportunity of reinforcing the value of their services or possibly demonstrating the value in their sales success as judged by market share or customer satisfaction.

Now I know as a marketeer that part of good advertising is "standout" to create interruption and thereby become memorable and distinctive but I can't recall a campaign that has built credibility or memorability through apologising! 

Now maybe the concept of this campaign is to start a series of these ads around this company's core Auckland market. I can just see these future version:

Herne Bay sure has become pricey - sorry about that

Otara sure has become unpopular - sorry about that

Meremere sure is a long drive to the CBD - sorry about that

Albany sure has become congested - sorry about that

It's just my opinion, but I feel that apologising is not the best platform for a brand building campaign - maybe you disagree. Happy to hear your views. Please feel free to share a comment below.