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.  


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 price trends become harder to forecast

by Alistair Helm in


I was surprised by the statement made by Westpac's Chief Economist today

It is impossible to tell what is really going on with house prices

His comments refer to the growing volatility in house price measures, especially from the latest REINZ stats of both median price and stratified median price index. The latter a measure designed to provide a more accurate and stable measure of prices as it balances out the impact of high price suburbs vs. low price suburbs to ensure neither unduly skews the data.

This chart above shows the trend in both median and stratified price over the past 7 years - most noticeable is the rise of the recent 3 years. You can also see the volatility in recent months from what has historically been a smoother trend in stratified price measure as seen in the red line.

In the Auckland market the volatility is more pronounced and also what is very striking is the direct correlation of prices (especially the median price) with the timeline of the implementation of the Reserve Bank LVR restriction.

The impact after the 1st October implementation has seen median price shoot up directly as a result of the significant fall in sales of lower priced property thereby pushing the median price up. The fall in January prices is a seasonal issue which can be seen regularly through the past years, although the scale of the fall this year is surprising.

As Westpac's Chief Economist Dominick Stephens says in his Home Truths report for April the fundamental issue is that the raw data of house prices is not a case of matching apples with apples, more its an apples with oranges comparison. On the REINZ Stratified House Price Index (HPI) he makes these comments reflective of the charts above:

As I have written in the past I believe that REINZ should take on the challenge of collecting and aggregating more granular statistics on property sales - they are in the best position to do so as they are the incorporated society with almost all real estate agents as members who collect data on every sale in NZ at the time the unconditional agreement is reached.

Even without changing any collection process they could today provide far more accurate and valuable information on property prices.

One of the fundamental problems with there data reporting today is that they currently aggregate all property types together - be it a 1 bedroom unit, a studio apartment, a 5 bedroom home or a 20 hectare lifestyle property - to the Real Estate Institute they are all just a house - that is dumb!

Take a look at the divergent make up of property in Auckland across the major districts as defined by REINZ as seen from the composition of listings on Realestate.co.nz today.

Certainly across Auckland two thirds of properties for sale are houses, but within Auckland city over 1 in 3 of all properties are apartments. One in ten of all properties on the market across the Auckland region are units or townhouses - these certainly have a very different price profile than regular houses or lifestyle properties. In the outer areas of Auckland Lifestyle properties make up more than a quarter of properties. Think on the fact that within Manukau a $4m lifestyle property in Whitford is seen by REINZ as the 'same' as a $219,000 single bedroom unit in Papatoetoe.

All sales records remitted to the data system at REINZ currently have the following fields (some of which are completed by the selling agent - certainly all should be mandatory)

  • Unit Number
  • House Number
  • Road Name
  • Suburb
  • List Price
  • Sale Price
  • List date
  • Agreement date
  • Unconditional date
  • Type - Residential House / Apartment / Home & Income / Unit / Lifestyle
  • Bedrooms
  • Land Area
  • Floor Area
  • Valuation
  • Valuation Year

This is the data set for existing data - upon this set of data, better more accurate sales and sale price analysis could be undertaken to allow economists, property buyers, property sellers, investors, real estate agents and other could make better informed decisions. 

Maybe then we could avoid the statement that an Economist feels that its virtually impossible to know what is going on with property prices.

 

 


The price of property / the price of talent – why the secrecy?

by Alistair Helm in


Conversations.jpg

I have in the past commented about the fact that a significant number of properties on the market are advertised without an asking price – the endless substitutes of “By Negotiation”, “Offers”, “Auction” and “Price on Application” to name but a few amount to over 11,600 properties on the market today. It is my opinion that all properties should be presented for sale with a clear indicative price – this is the way property is marketed in most other countries, so why are we so different here is NZ?

The answer may have been provided by the article I found today by a respected commentator on the HR industry – Richard Westney in his article dramatically titled “Show me the Money!!” shares the very same surprise and frustration as to why job adverts are not posted more often with a salary range. He smartly in his article draws reference to the potential for this behaviour to be hard wired into the kiwi mentality after all, he says “We do the same with houses. Everyone has an idea of what they want when they are selling, so why not just say so?

Richard I salute you for championing this issue, even if property is not your forte!

What I found very enlightening in this comparison between advertising of jobs and homes was the comments from readers of his article. A valid comment was made as to confidential information of a salary range for the recruitment within a company where the role being advertised might have incumbents on the same level. This question was answered very well in the ensuing dialogue. However returning to the property market, such an excuse would have no foundation as there are no identical properties which could take harm from such information becoming public – in most cases such information is seen as beneficial.

Property for sale should have a clear price or at least price range. I believe that a lot of the current frustrations in the Auckland property market in particular result from buyers seeking out properties based on CV and setting their expectations based on this (no need to reiterate how I think this is so misleading and should be ditched!). If agents were to advertise property with a realistic expectation of the likely price range we may find that the buyers approach property more realistically, thereby avoiding wasting their time (and money) on property that turns out to be beyond their budget. That would bring more efficiency to the market, all it would take would be a bit more transparency.

So please SHOW ME THE MONEY!!

 


What you can learn from tracking the 'digital history' of a property listing

by Alistair Helm in


Searching for a home istock.jpg.png

There is much to be gained as an active property shopper online in tracking the history of a listing to get a sense of the mindset and personal situation of the vendors. To me this history of listing activity online can really help you better understand the current market dynamics and be better informed as to the situation of particular house on the market.

To help you better understand to what I am referring let me show you by example a recent properties I have tracked for sale in Auckland. I think it is best not to reveal the actual identity of the property as it is still on the market. That is part of the reason why this is relevant, as the property has been for sale for a period longer than the emerging standard these days in Auckland of 3 weeks. Part of the reason why it has not sold in my opinion is because the vendors have too high an expectation of sale price. This I think is endemic in Auckland at this time as seller’s expectations are getting ahead of the market.

The property in question came onto the market back in early January. A leading boutique real estate firm with an auction date of mid February listed it. The agents had high expectations of a selling price “well in excess of $2m” as was presented when the property was profiled in the NZ Herald property supplement.

The auction date came and went with clearly nobody prepared to meet the vendors reserve. The decision between the vendors and the agent post-auction was to change the method of sale from auction to ‘by negotiation’. Clearly though the vendors ‘showed their hand’ and their eagerness to sell, as a few weeks later the listing was changed to show a price of $2,750,000.

Time passed by and the listing remained on the market unsold. The next milestone occurred in mid April when the 90-day period of the original listing agreement expired. At this time the vendors decided to give another agent a go.

This is where things got really odd. The new listing agent from a large Auckland real estate company decided to list it with a price indication of $2,850,000. That was $100,000 more than an advertised price that generated no buyers. I have no idea what prompted this decision. I can only imagine the conversation with the vendors must have gone something like “I believe there is a strong interest in this property and clearly your previous agent failed to reach the right buyers, not only can we find those buyers but we can convince them that the property is worth $100,000 more than advertised last week!

As a point of note one consequence of listing with a new agent is the fact that the property appears online as a new listing with a new current listing date, in this case of mid April, rather than the true "placed on the market" date of mid January. This may have partially assisted in pitching a new price for the property.

Weeks went by and the property remained unsold. Then strangely just a week or so ago the listing became an auction with a date of auction set for mid May!.

This property has clearly not found a willing buyer despite two agents, two auctions and clear price expectations. The vendors clearly have signaled that they want $2.7m minimum for the property and yet nobody is prepared to pay that sum. Potentially this new auction (set for mid May) might well see the vendors set a more realistic expectation with a reserve below $2.7m, if not, I would judge the agent is wasting their time as this is clearly a case of the vendors expectations being well removed from the reality of the market.

So what can be learnt from this analysis and tracking of a listing:

  • The web allows anyone to now see very clearly the marketing of a property and as a consequence of actions what the market is saying about price expectation
  • In my judgment it shows that the choice of agent has no bearing on success. I say this because the platform for marketing properties today is entirely focused online. Every agent has access to this platform where the property sells itself; the profile, scale or expertise of the agent has no bearing on the online presence.
  • Whist the agent in my opinion has no bearing on success the quality of presentation and the extent of online promotion certainly has an impact. However in the case of this property I could not fault the standard of marketing online.

So in my opinion the failure to sell this property after over 100 days does not lie with the agents or the marketing, simply this is a case of the vendor’s expectation of price. There is always a buyer for a property – at a price. The question is always is, does that price the buyer is willing to pay, match the vendor’s expectations – in this case (so far) it does not.

Now I would concede that this property in the higher price range will not have quite the number of prospective buyers as would be found around the level of the median price of Auckland properties at $590,000; however I believe this form of digital investigation is valuable to all property hunters to assess.

As a final comment there would be those reading this who might well say that agents should be more professional in managing vendor price expectation; they should challenge the vendor and if they believe that the expectations are unrealistic they should walk-away to uphold their professional reputation and not waste their time with a property that is clearly not matched to market expectations. However it would be a brave agent who would confront this by declining a listing on the grounds of an unrealistic vendor price expectation, after all they rely solely on commissions, and for many agents having a listing (irrespective of whether they sell it, or not) is a status point of value for their current profile and reputation.


Property data - do we really have what we need?

by Alistair Helm in


Property data.png

The question might be better phrased as do we have what we want or what we need? The fact is we are well served with property data in NZ as compared to some other countries.

We get monthly reports on sales volumes and median prices as well as valuations and listings volumes. Each month the data is published across all media and a regular flow of analysis is applied to give us a sense of what it all means. Economists and commentators (myself included) provide our take on the data and by the 10th day of the month we are back to other property stories until the next month comes around.

Just this week we saw a new quarterly REINZ/Fairfax media report on suburb level property prices and sales - headlined as "property news you can use" . Valuable information, but nothing new. The core data is what the Institute has been collecting and squirreling away for years.

Scanning the wider property media from around the world I am beginning to think we are fooling ourselves; as we are actually only seeing a very thin layer of data. The property market in NZ at residential level is worth $34 billion and supports over 9,000 salespeople who charge out a collective $1+ billion in fees each year. Should we not expect greater insight from the real estate industry?

Let me hypothesize some scenarios of property data that I think would be valuable to all and is not available at this time:

1. 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?

2. How many of the properties sold each year are sold to people within a 5km radius of where they currently live and how many are sold to people who move from another part of the country or from overseas; if from overseas, then from which country, are they returning kiwi’s or new immigrants?

3. What is the median price for 3 bedroom homes in a suburb as opposed to a studio apartment in that suburb and how have these prices changed over the years?

4. How many sales in Northland last year were of holiday homes (as second homes) and what was the median price and how does that compare to the past 5 years?

5. 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?

6. Over a 3 year period approximately x% of properties are sold to a new owner. What is the true value increase of these properties in total, and also what change in value were the result of improvements or renovation and how much for properties that were not subjected to a renovation?

7. What percentage of property purchases were made without a mortgage and of those purchased with a mortgage what is the current mortgage to equity ratio?

8. What is the median advertising spend by price range of property by region of the country?

Such richer data would provide so much more insight and assist consumers, economists and many other businesses to better plan and offer services around the buying and selling process.

This data outlined above is not beyond the bounds of capability. Such data could be captured by real estate agents or the Real Estate Institute in its capacity as the organization representing the industry and its professional practioneers.

What would be needed would be a more comprehensive data collection system adopted by the industry. A report could be required as a mandatory part of the reporting for every sale completed by a real estate agent. Currently all an agent has to do is identify the address of the property, when it sold and for how much, when they listed the property and how many bedrooms etc. Much of this data is duplicate for the data held by Realestate.co.nz (a subsidiary of REINZ) anyway and therefore should share data

A new more comprehensive reporting system could capture all the necessary data identified above. An online system would intelligently align questions to known data sets regarding the property so for example questions for a property listed on Realestate.co.nz as a lifestyle property would be tailored to that type of property, and would pre-populate with historical sales data, listing information and analysis based on property identification.

In addition the Real Estate Institute in its role of upholding professional standards could implement a consumer survey for all completed sales which could be sent via agents to vendors and could collect information to supplement that collected by agents. It could survey professional standards and seek to provide the industry and the consumer with feedback and insight as to the professional services offered by real estate agents.

I believe the real estate industry needs to be more transparent and accountable for the services it offers and also to be a more valued provider of rich information and trend analysis. The challenge is once again made to the industry at large and the Institute in particular to step up and adopt some of these proposals.


Finance Weekly interview - Jan 2013

by Alistair Helm in


I was asked recently to share my thoughts on the housing crisis facing this country, especially in Auckland and Christchurch. This interview was undertaken by the Asian TV9 channel with the interviewer Brenda Lee.

The interview is around 25 minutes long and covers my views regarding the property market in the context of the impending housing crisis facing this country and the various implications that will impact buyers, renters and investors alike.