Living with greater transparency - the challenge for real estate

by Alistair Helm in ,


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Two articles this week prompted my thoughts about the challenge that greater transparency plays in our lives and the impact it will have on the real estate market. I have commented in the past as to the use of obfuscation by some commentators from within the real estate industry when talking about the market, a behaviour that I sense will have no part in the future.

The first article that caught my eye was a tweet which came into my stream as a retweet from a person I do not know but the content certainly made me sit up! 

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A person using social media to reach out to as wide a community as possible to ask a question - a very relevant question as to the condition of a rental property. A question they could have asked the letting agent or the landlord, however they chose to reach out to an open audience to see if anyone could answer the question. This 'reaching-out' to people's connections whether on Twitter or on Facebook or any other medium is what the internet allows us all to do. Rather than historically relying on controlled channels we can look for trusted connections to help us evaluate products and services.

The lesson for the real estate industry from such examples is be open, be ready to engage and answer all such questions and better still, be proactive and provide as much relevant information as possible. If as the case in this example there really is a water-tightness issue with the property (and I have no idea) then take steps to discuss with the landlord to be ready to answer any such question, after all the agent is just that, the agent, not the owner. 

 

The second article was actually a link I saw to a random listing in the US on Zillow. A house that had been on the market for a couple of months. Now; with well over 2 million homes on the market this house is not remarkable in anyway. What is remarkable, and it is not for the first time that I have seen this, but in the context of this issue of greater transparency this property caught my eye because of the richness of valuable information available on the property that we would never see on a property in NZ.

Let me highlight these insights and in so doing provide an explanation of why I think we are being short-changed in regard to valuable property information, not so much from the real estate industry but from at heart the property data industry.

 

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1. Sale Price - this property much like most in the US and in fact most countries has an asking price. Not a sticker price, but a price which based on comparable local sales would indicate that it should be worth as judged by the listing agent, thereby providing prospective buyers with a guide. This property may sell for more than the $339,500 if there is sufficient demand just as would be the case for property in Auckland at the moment. To put a price on a property, every property for sale in NZ would not be extra work for real estate agents, it would not diminish their role or devalue the sale price, it would though I think build respect and openness!

2. Last Sale Price - this property sold for $390,000 just over 3 years ago - FACT. A fact that is true of all houses in NZ, yet we are not given open access to this information, it is locked away behind payment walls by government entities (local/ national) - it is public record and should be openly accessible to assist the property process. 

5410 Ocean Mist Loop, Blaine, WA 98230 is For Sale - Zillow-1.png

 

3.  Days on the market - valuable information, thankfully we do have this insight on both Trade Me Property and Realestate.co.nz in the form of a listed date; although somehow this data structure seems more telling.

4. Estimated valuation - in this case the proprietary Zestimate. A complex dynamic algorithm developed by Zillow to place an up- to-date estimate on every property in the US. Now in NZ you can buy such an estimate from QV for $50, but in the US the data is free, dynamic and referenced as to when it was last updated. QV is joint venture between the Government owned entity Quotable Value Ltd and the US company Core Logic. It's NZ public record data being managed through a US technology company's algorithm to be sold back to us at $50 at a time!

It is interesting to see that QV report an accuracy of 10% variance of sale price to estimate 65% of the time and 20% variance of sale price to estimate 93% of the time, Zillow goes further by reporting 5% / 10% and 20% variance by major city with accuracies of up to 73% at 10% variance and 93% for 20%. So the data model of QV is good - we just have to pay the government and the US company for the pleasure.

 

5410 Ocean Mist Loop, Blaine, WA 98230 is For Sale - Zillow-2.png

5. Price History - not only do property buyers in the US have an asking price and a 'last sale' price they also have an incredible insight into the historical price movements of both sale and asking price as cited by this example.  Here we can see the historical transaction record (a bleak picture in this case as the US property market tumbled and continues to struggle). Two public record sale prices together with details of when the property was listed at what price and price changes as well as by which agency.

I can sense a loud cry from the real estate industry about this data, that it should not be exposed as to do so would be to diminish the appeal of the property. However if all property was laid bare with the true facts, buyer could make informed choices. Property transactions would not collapse. Quite possibly we might not have the rampant property speculation and price bubbles built off the back of sketchy information and hyped frenetic auctions. Maybe, just maybe this greater transparency like sunlight could help us all better understand and operate with greater confidence in the property market!

 

 


Let's get rid of Property CV's !

by Alistair Helm in


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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.

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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.


Making sense of the monthly property statistics

by Alistair Helm in


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We are fortunate in NZ to be blessed with a rich and comprehensive database of property statistics. Many countries have to wait many months between data releases, which tend to provide quarterly trends. We have the benefit of insight into the property market with stunning regularity, all crammed into the first 10 days of each month.

However a common complaint is that the data is not consistent and it is presented using different metrics; for example median price, stratified median price, average price, valuation, seasonally adjusted truncated mean asking price, rental rates, to name but a few. So as a smart property buyer or seller it is important to understand what these metric can tell you and what you should pay attention to, to be ahead of the game.

There are 3 sets of data that I consider critical. These are property sales data (the measure of what is happening as a function of buyer activity), property listings data (the measure of what sellers are doing and how they judge the market) and then rental data (the measure of how landlords are pricing their rental properties).

Property Sales Data

This is probably the best-known sector of real estate data with both the Real Estate Institute (REINZ) and QV pitching their data to the market within days of each other. Data that on first impression appears similar, but on further investigation is somewhat different and the difference can be significant.

REINZ provides rich data on property sales, median prices and days-to-sell, across not just the major regions of the country but right down to clusters of suburbs. Sadly the full data set is not accessible online in a machine-readable format, rather it is published as a pdf with prior year and month comparisons.

The data is collated by the reported unconditional sales of properties by licensed real estate agents who are members of REINZ, submission (as I understand it) is not compulsory, but in spite of that it is very comprehensive, and its timeliness provides for the prior month insight within 10 days of the end of the month. The data goes right back to 1993 and using their online tools you can access databases for particular suburb clusters.

REINZ present the majority of pricing information in the form of median price, this is statistically appropriate as it ensures that extremes of sale prices within data sets don’t skew the data. However in preference to the raw median price I tend to focus instead on the Stratified Median price, this data set developed in cooperation with the Reserve Bank is sadly only published for the 3 major cities as well as the national figures. It is a far more accurate indicator of true price movements as it applies modeling to ensure that higher sales volumes in high price suburbs for example are normalized and thereby don’t result in an overall rise in prices.

QV produce a well-recognised set of statistics on the property market based on their rich database covering every house in NZ in their role as the government rating valuations organization. This database is updated on a daily basis by the transactions of settled sales as registered by LINZ. This process captures all property transactions irrespective of whether the transaction was undertaken by a licensed agent or a private sale (estimated at around 10% of all sales).

QV do not report selling prices, rather their business is valuation estimation and it is this index, which is published monthly. Their computational models analyse the actual sales prices for individual properties matched to prior valuations and thereby create an index of house price movements. This provides a good representation of trends of price movements rather than actual figures for property prices regionally or nationally.

One drawback to the QV data is that it uses a broad time period, each report is based on the prior 3 month’s settled transactions. This is further impacted by the fact that long settlement on some properties could mean the property sold unconditionally may not appear as part of the QV dataset for anything from 3 to 5 months. Despite this timing issue the trend indicators of price movements from QV are very useful and accurate.

Property Listings Data

Property listings data provides a vital insight into the supply side of the market and has only become available since the ascendency of the web as the definitive search process for buyers. The monthly data is provided by Realestate.co.nz in their monthly NZ Property Report published within a day or so of the start of every month.

The report details the number of listings coming onto the market in the prior month, the asking price of these listings as an indication of the sellers / sellers’ agent’s expectation, as well as the level of stock of houses on the market at the end of the past month. The report is very detailed in printed form and also provides the ability to download the full data sets with both raw data and seasonally adjusted data.

As the originator of this report during my time at the company, I believe the report  holds a unique insight into the supply side of the market, as a key lead indicator of the market. As an example of this is the fact that the current shortage of listings was flagged as early as April 2011 in the report by which time there was a clear trend as to how this would lead to price pressure in the medium to long term.

One key data set within the report that I think is worth focusing on is the Inventory as a measure of available stock of property on the market. This is presented not in absolute numbers but as a representation of the number of weeks that it would take (based in current rate of sales) in theory, sell all of the houses on the market. Nationally this has fallen from a high of over 52 weeks (a full years supply) to now barely half that at 27 weeks.

I have recently taken these key numbers and produced what I call a Property Dashboard - this simple gauge shows where each of the 19 regions of the country are at, in respect of experiencing a sellers market, a buyers market or a balanced market.

Rental Data

Weekly rental rates are published from the Department of Housing and Buildings (now known as The Ministry of Business, Innovation and Employment)

Tenancy Bond database. This monthly data is published in the NZ Property Investors magazine and provides great insight into the state of the rental market.

The Agency has recently opened up their data sets going back to 1993 by each local authority, so if you are keen to play with spreadsheets to analyse the data this is highly valuable.

Trade Me has also started providing some valuable data on the rental market. It is sadly rather infrequent, being on a quarterly basis and not as detailed as many would like, however I am sure that with the passage of time they will provide richer information, as they hold an incredibly rich data set of listings, rental prices and transaction pace, covering every property type, size and location.

Having begun by saying that we are fortunate in NZ to be blessed with a rich and comprehensive database of property statistics, I would actually conclude by saying that we are actually lacking real in-depth information and statistics. In a recent article I posed the question "Do we really have the property data we need?" I hypothesized as to what type of statistics would be really valuable, for example how would it be if we could for example understand:

  • What is the percentage of residential property buyers that are sold to first-time homebuyers, typically what are they buying, where and for how much; how has this changed over the years?
  • Equally imagine if we could understand how many properties in Auckland are bought as investment properties and how many of these are managed privately as opposed to being managed by a property manager?

Such rich data would provide so much more insight and assist consumers, economists and many other businesses to better plan and offer services.

This data is not beyond the bounds of capability. Real estate agents or the Real Estate Institute could capture all of this data in its capacity as the organization representing the industry and its professional practioneers.

This article is also published in the May edition of the NZ Property Investor magazine


Watch My Street - Your property information (if you live in Wellington!)

by Alistair Helm in


If you are a Wellington resident or looking to buy property in Wellington then you are in luck – if however you live anywhere else in NZ then I’m sorry but the new property service of Watch My Street is not available to you (at this time).

This new property information service was launched a week or so ago and is apparently garnering a strong level of interest from residents of the capital. Helping people easily access what is basic property information in an open and accessible manner – the local authority rating valuation and other data related to the property.

The website has been built and is operated by the team at 200Square who operate a unique and innovative real estate business that is in their words is “reworking the way houses are sold in New Zealand, using clever technology, a better process and a fixed commission that puts more money in your pocket”

The team have smartly mashed together the data from Wellington City Council, Land Information NZ, combined with property listings from Trade Me Property, school zone details from the Ministry of Education and mapping services Koordinates.

This is exactly the example we need to see where public information collected by local authorities is made accessible by government agencies in a machine-readable format so that smart tech people who understand the needs of consumers can turn into a valuable service for the free – no point in wasting tax payer money getting government agencies trying to do the job, let the public decide how it should be used, after all this is our data collected for us by our government (national or local).

This is all well and good except that the following local governments do not provide such property data in a machine-readable format for free.

Far North District Council

Kaipara District Council

Northland Regional Council

Whangarei District Council

Auckland Council

Hamilton City Council

Hauraki District Council

Matamata-Piako District Council

Otorohanga District Council

Rotorua District Council

South Waikato District Council

Taupo District Council

Thames-Coromandel District Council

Waikato District Council

Waikato Regional Council

Waipa District Council

Waitomo District Council

Bay of Plenty Regional Council

Kawerau District Council

Opotiki District Council

Rotorua District Council

Taupo District Council

Tauranga City Council

Western Bay of Plenty District Council

Whakatane District Council

New Plymouth District Council

South Taranaki District Council

Stratford District Council

Taranaki Regional Council

Gisborne District Council

Central Hawke's Bay District Council

Hastings District Council

Hawke's Bay Regional Council

Napier City Council

Rangitikei District Council

Taupo District Council

Wairoa District Council

Horowhenua District Council

Manawatu District Council

Manawatu-Wanganui Regional Council

Palmerston North City Council

Rangitikei District Council

Ruapehu District Council

Stratford District Council

Tararua District Council

Taupo District Council

Waitomo District Council

Wanganui District Council

Carterton District Council

Hutt City Council

Kapiti Coast District Council

Masterton District Council

Porirua City Council

South Wairarapa District Council

Upper Hutt City Council

Tasman District Council

Nelson City Council

Marlborough District Council

Buller District Council

Grey District Council

West Coast Regional Council

Westland District Council

Ashburton District Council

Canterbury Regional Council

Christchurch City Council

Hurunui District Council

Kaikoura District Council

Mackenzie District Council

Selwyn District Council

Timaru District Council

Waimakariri District Council

Waimate District Council

Waitaki District Council

Chatham Islands Council

Central Otago District Council

Clutha District Council

Dunedin City Council

Otago Regional Council

Queenstown-Lakes District Council

Waitaki District Council

Gore District Council

Invercargill City Council

Southland District Council

Southland Regional Council

So thanks to Wellington City Council for showing NZ local authorities the way to approach this matter. If you feel that your local authority should participate in the same way then I suggest you follow the advice on the Watch My Street site and petition your local council.