Property musings on Facebook - 17 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.


Latest commentary on 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!


Do agents warrant such front page public censure?

by Alistair Helm in , ,


Waking up to the headline of the Herald on Sunday this morning, I was confronted with the story that must be the worst nightmare for a real estate agent Agent put pressure on widow to sell!

Real estate agents rely on their reputation, as there is very little else to differentiate the services of one agent to another or one real estate company to another, and in this world where the right to be forgotten is wholly unworkable the real estate agent involved in this matter is likely to suffer significantly greater loss than the $2,000 he was fined by the Real Estate Agents Authority.

It was in fact the scale of the fine that peaked my interest and stirred me to look a little bit deeper into this matter as the authority has the jurisdiction to fine an individual licensee up to $10,000 and up to $20,000 in the case of a company - Bayleys, the company in question was fined just $1,500 in this case. Objectively then it is clear this case is by no means at the most extreme end of the criteria of unsatisfactory conduct. It should be noted that the finding in this case was unsatisfactory conduct not the more serious finding of misconduct for which the fines are up to $15,000 for an individual or up  to $30,000 for a company

I have faith and belief in the role and effectiveness of the Real Estate Agents Authority as clearly, through their complaints procedure they have found the licensee agent and the company guilty and certainly the complainant did have due cause to complain. My concern though is with the reporting of this case in the media which I think does not in anyway match the scale of the complaint.

The readership of the Herald on Sunday as the newspaper publisher so glowingly highlighted the other day is 371,000, add to that an even larger audience online and the fact that this article is already the most read article of the day; and I would judge that this is effectively a public flogging and humiliation of an agent far more severe than is fairly justified.

 

Lets examine the facts which I have done so that transparency can aide an objective evaluation. (The full details of the decision by the Complaints Assessment Committee can be read here).

Firstly this headline and front page article is not actually news. The auction to which the complaint relates was held in March 2012, the complaint was heard and adjudicated upon on the 29th November 2013 and the fine was imposed on the 6th March. The article is published here on the 1st June 2014. So the newspaper has been sitting on this article in reserve for 3 months waiting for a quiet-news-day when they could roll this out in an attempt to fill a void as there is nothing remotely newsworthy (in the context of current) about this - it was news on the 6th March.

 


The complainant made 6 complaints against the company and 7 complaints against the agent 

 

The complaints against the Licensee can be summarised as follows: 

 1. The Licensee had a conflict of interest when assisting the Complainant to obtain finance in September 2011: 

The complainant approached the licensee in November 2011seeking to borrow $10,000 to undertake renovations on her home. The licensee advised  the Complainant that this was not possible, but provided the Complainant with contact details of a mortgage broker who could possibly assist her in obtaining finance - appropriate and professional advice

Complaint dismissed

2. The Licensee failed to allow the Complainant to run an onsite auction with her preferred auctioneer Mr. S:

The Complainant signed a listing authority which featured an onsite auction with the preferred auctioneer in December 2011, however that authority was cancelled by the Complainant some hours after signing it.

Complaint dismissed

3. The Licensee applied pressure to the Complainant to list the Property for sale with the Agency:

There was no evidence of pressure. The agency listing agreement was signed by the Complainant after a 24 hour period had elapsed during which the Complainant had reviewed and consider the agreement and the auction as part of Bayleys “Big Call” auction campaign.

Complaint dismissed

4. The Licensee presented offers to the Complainant from potential purchasers which were in the region of $370,000.00 (being the Government Valuation) when instructed by the Complainant not to do so:

The licensee presented offers of between $367,000.00 and $405,000.00 and in the words of the Complaints Assessment Committee report were “therefore below the Complainant's price expectations (but) was beyond the control of the Licensee and no fault of the Licensee.

Complaint dismissed

5. The Licensee arranged to sell the Property to a personal acquaintance:

The Complainant alleges that the eventual buyer of the Complainants house was a personal acquaintance. The Complaints Assessment Committee received statements that disproved this as the eventual buyer had only met the Licensee at open homes

Complaint Dismissed

The final two complaints were upheld as unsatisfactory conduct and reading the evidence it is clear that the agent failed to act at all times in the best interest of his client, especially considering the age and emotional state of the client.

6. The Licensee applied undue pressure on the Complainant to sale the Property to the purchaser following the auction; 

7. The Licensee’s conduct, during the course of selling the Complainant’s Property and as a result of the outcome, caused the Complainant pain and stress and reduced her financial security for her retirement years;

 


The 6 complaints against the Agency: 

1. The Agency had a conflict of interest in assisting the Complainant to obtain finance in September 2011 to carry out renovations on the Complainant’s property (the Property):

Complaint dismissed based on the same evidence for the Licensee complaint

2. The Agency did not allow the Complainant to run an onsite auction with her preferred auctioneer Mr. S:

Complaint dismissed based on the same evidence for the Licensee complaint

3. The Agency did not provide the Complainant with adequate time to sell her property:

Complaint dismissed based on the due process was followed in the signing of the agency agreement and the professional manner shown by members of the Bayleys team and the auctioneer particularly at the auction.

4. The Agency’s auctioneer failed, prior to the auction, to read a statement prepared by the Complainant pointing out the Property’s selling points:

Complaint dismissed as the auctioneer presented the property in a professional manner to the ultimate benefit of the client

5. The Agency charged the Complainant an excessive commission:

Complaint dismissed based on the very clear detail provided in the listing agreement as to the commission and the ultimate sale

6. The Agency sold the Property for $451,000.00 when it had a true value between $480,000.00 - $520,000.00, thereby causing the Complainant substantial financial loss:

The Licensee appraised the property for sale in November 2011 fro between $440,000 and $470,000, it sold for $451,000. The figure if $520,000 was presented by the Complainant as a value estimate based on the view of another real estate agent who valued the property at $550,000

Complaint dismissed

 

The Agency was though found guilty  of unsatisfactory conduct  as “on balance, the Committee (took) the view that the Agency had ample evidence of the distress of the Complainant and the actions of the Licensee. In these circumstances the Committee view(ed) that that the Agency should have intervened and properly supervised the Licensee." 

 

This brief summary of this case seeks to present a fuller picture surrounding this case rather than the truncated version presented in the headline story.

The fact is that the transaction of a property is an emotionally charged undertaking, even more so in the case of an auction. The process needs to be given the care, time and consideration by all concerned - both the agent and client. It is also logical that if the client is elderly and / or emotionally upset that the process should be handled with appropriate care. This was done by Bayleys and their team, however the agent in question did not apply the necessary care, and through the requirement of the oversight, Bayleys are found to be guilty on this matter.

This case is being appealed as per the article in the paper - as to the decision of the penalty, as opposed to the determination of the Complaints Assessment Committee.

The agent in this complaint Mark Birdling has only this one disciplinary complaint against him. He has been in real estate for over 9 years and has over that time sold many properties for which I am sure there have been many satisfied customers. He has been in my view wrongly singled out for headline-grabbing attention when the other 34 such offences of misconduct or unsatisfactory conduct in 2013 have been largely ignored. Sure the media have a responsibility to report what they see as stories and news of importance to their readers. However you have to seriously ask, is the headline story in today’s paper appropriate to the conduct or is it as so often happens and as I contend, a cheap media grabbing story where the short term profit motives of the media company rides rough-shod over the career and reputation of the real estate agent concerned.


Let's get rid of Property CV's !

by Alistair Helm in


CV.png

I doubt that there would ever be a conversation between an agent and a prospective buyer of a property without reference to the CV of the property. It is judged by most people in NZ to be the “official” valuation of the property, almost as though the government (local or national) should provide such a service.

At least that is what buyers and sellers tend to think.

The fact is there is an argument that in NZ the whole property industry would be better off without a CV for individual properties. It would at least reduce the proliferation of media stories featuring references to selling prices measured against the CV of which there would be almost a daily flood. Such stories only perpetuate the myth that because a property sold at a price 20% / 50% / 100% above “its CV” there must be basis upon which all properties are rising in price by 20% / 50% / 100%!!

You look overseas and find that in most every other country there is no such number for an individual property. You will get the local council rates assessment, the local government tax, the capital value of the land or the rentable estimation for the property,; but never an estimation of valuation.

Let’s be very clear here to ensure complete clarity the Capital Value (CV) is based on what a property is used for (land use) and the rateable land value of the physical land the property sits on. Quotable Value New Zealand (QV) is the agency contracted by Councils to assess property values, and it reviews these valuations every 3 years. Some Councils state that the CV is an estimate of the probable selling price of the property as at the effective date of valuation, other steer clear of such assertions.

QV state on their website that “Formerly called Government valuations (GVs), council rating values (RVs) are compiled by statute, under the Rating Valuations Act 1998, mainly as a uniform basis for levying local and regional council rates. Rating values also serve as a useful guide for property owners and other interested parties, as they are impartial and independently assessed as at the same date for every property in a Local Council.

A Council Rating Value (RV) comprises 3 main components:

The Capital Value (CV) which is the assessment of the probable price that would have been paid for the property if it had sold at the date of the last general revaluation.

The Land Value is the probable price that would have been paid for just the land as at the date of valuation.

The Value of Improvements, which is the difference between the capital and land values. It reflects the additional value given to the land by any buildings, other structures or cropping trees and vines present on the property, and any landscaping that adds value to the land.

The CV is in my view misleading and potentially damaging to the process of real estate.

Here are the reasons for this assertion:

1. It is a computational figure; no human is generally involved in its assessment. It is arrived at by the use of a computer algorithm that analyses recent sales within a geographical radius of the property in question. The pairing of such properties is based on property and section size. The process though takes no account of the condition of the property, the quality of improvements to the property aside from any general lodged building consents.

2. It is assessed on an infrequent basis (3yrs) and therefore is almost always out of date. The CV’s for Auckland for example were published in 2011, the prior CV’s were published in 2007 or 2008. The work to compute the CV is undertake months before publication and is based on sales data in the months running up to the computational so the Auckland CV’s are based on sales in mid to late 2010. So thereby the references in Auckland are over 3 years old and the property market (and general economy) are vastly different to 3 year ago.

3. The true market value of a property is the value assessed as between two private parties; that being a willing seller and a willing buyer. It may well be that the accepted price between these two private parties has no bearing on either the council valuation or even a valuation by a qualified valuer. That is just a fact of the market.

4. Having a CV for a property becomes a crutch for the real estate industry that does nothing to add value to their services. Imagine for a minute if there was no CV. A real estate agent would use skill and local knowledge to assess recent sales, ensuring that local knowledge could ensure that truly comparable properties were evaluated in order to come up with an intelligent estimation of the true market price. Instead almost in defense of real estate agents they have to start with the CV and then justify why that is not the “market expectation”, or as is more likely today why the price expectation = CV +25%!

5. Without CV’s for properties we might actually get more property advertised with a price indication. At present around 30% of all property being marketed for sale in NZ is without a price indication, in Auckland that total is closer to 50%. Because of this fixation of the CV being a “market indicator” and the lack of confidence in agents to the true value, property is marketed without a price. This situation is unsatisfactory for buyers who stumble around in the dark unsure if their favourite property is within their financial means.

Putting a price on a property is not the same as a price ticket on an item in the shop – it is an indication of what the vendor (in consultation with their agent) considers the property to be worth. They as the vendor know that they may have to accept an offer below or maybe above that price. They are never forced to sell and can refuse an offer that they feel does not match their expectations; simply put they need to be that ‘willing seller’.

The epitomy of what I consider the ridiculous situation with comparisons to CV’s and benchmarking to CV was seen in a recent advert by a local real estate company. They advertised how much more than the CV they had achieved.

RE agent advert of sale vs CV.png

The data is meaningless, there is no correlation between the actions of the agent and the sale price above CV. Selling price over and above a professional valuation maybe; a speedy completed sale certainly; a competitive bidding situation absolutely; but not the benchmark of the CV.

Clearly it is highly unlikely that NZ will change the system of CV’s providing a basis for assessing local rates. I just wish that there was less focus on the CV and more on the local market of truly comparable sales stats presented by professional local agents to help buyers fully understand the true vendor expectations, and thereby bring greater transparency to the property market.