Could The Block series 3 be a leap too far?

by Alistair Helm in


I must confess I had not been gripped by the TV series The Block, I am more a Grand Designs person. However I can see the appeal, and based on the level of interest evidenced from the recent open homes, TV3, the production company and the sponsors must be delighted. It appears to be the golden goose that just keeps on delivering.

However I hate to be the Grinch to rain on their parade but I fear that Series 3 of The Block is not going to end as happily as the first two series with a successful clean-sweep of auctions on the night. I think the 3rd series is going to be a leap too far and one, if not possibly all of the properties may end up not selling at the reserve and thereby being passed in.

If you need a reinforcement to this view then look no further than the most recent Australian series of The Block in which apartments in Melbourne's suburb of Prahran have struggled to meet the reserve set at the auction as the market they are competing in is flooded with similar apartments. This recent article provides a vital insight into the challenges the Australian series has faced in marketing these very unique apartments.

For NZ the issue for these 4 new properties is not in my judgement the same as Australia. It is not down to marketing to standout in a crowded market, the issue is simply there is insufficient demand.

The original series of The Block NZ in 2012 delivered 4 renovated houses in Takapuna sold at prices between $800,000 and $961,000. The second series in 2013 delivered 4 renovated houses in Belmont sold at prices between $970,000 and $1,126,000. The current 3rd series has 4 renovated houses in Point Chevalier with a price expectation of $1,450,000. This figure is the search price indicator from the Realestate.co.nz website. This price level is 40% higher than the last series and puts these houses in a wholly different segment of the market.

This price expectation is a big ask for 4 properties in the same sub divisions to be sold at auction on the same night. To find a single buyer for this type of property in Pt Chevalier at this time, at this price point is probably quite likely. To find two is less likely and to find 4 is a huge ask in my opinion. Simply put, the higher the price point the smaller the market demand and the pool of prospective buyers. Add to this the media profile which whilst great for a TV show does have the ability to be a negative factor for potential buyers, who value privacy when looking to spend over a million and half dollars and may well not to be associated with a TV make-over show when there are other 'new' renovations on offer. All of these factors drive a higher likelihood of a less impressive auction event.

To prove my point let's examine some data. Barfoot & Thompson kindly provide insight into monthly sales by price level. They as the largest real estate company in Auckland account for around 40% of sales so therefore it is possible to estimate the average number of property sales across Auckland at each price point, reflective of the properties for sale during each series of The Block.



So based on the sales data at the expected price point of $1.45m there are about a quarter the number of buyers than those at the $800k to $1m bracket of the 2012 series.

A house purchase at $1m is a serious consideration, at $1.45m it is ever more of a significant consideration. These prospective purchasers are not super-fans of the TV series buying a momento of the series to show off to their friends; they will be property buyers, buyers who are discerning, judgemental, critical, cautious and private. 

Time will tell, but I will watch as will many hundreds of thousands of viewers on auction night to see if they really can sell over $6m of real estate at a live TV auction.


One property does not a market make!

by Alistair Helm in , ,


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

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

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

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

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

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

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

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

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


Further ideas on being a smarter buyer

by Alistair Helm in


In addition to the articles I write analysing and observing the property market and the real estate industry on this site I also provide observations and opinions working with John Bolton at Squirrel, the property and mortgage experts.

Here a a couple of recent articles I have written on the subject of advice in choosing the right type of house to buy and also what not to say to a real estate agent - enjoy and share!

The buying choice - Buy new or a refurb?

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The allure of a new home or a recent renovation has significant appeal, however as the saying goes "all that glitters is not gold" and a wise cautionary approach might be recommended when assessing these buying options. Here's some advice tracing the pros and cons of these purchase options

The buying choice - A do-up or an existing family home

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Whilst never the "shiny new thing" a good traditional family home or a property in dire need of serious work are good buying options as long as you have your eyes open and appreciate what you are getting and what you (or someone working for you) is going to have to do. Here's some advice tracing the pros and cons of these purchase options

Things you should never say to a real estate agent!

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As a buyer you need to have your wits about you - you need to remember that the smiling-faced agent showing round your desired home is a wolf in sheep's clothing ready to pounce on any morsel of insight they can use for their clients advantage - here are some cautionary advice of what not to say!


Hometopia - everything home buyers & sellers need online

by Alistair Helm in


The new property website born of the excellent book "Where to Live in Auckland" was launched last week and certainly provides a rich online library of comment, articles, insight and data to help people better appreciate the Auckland market right down to the local level. In my view it certainly lives up to the proposition as "everything home buyers and sellers need". 

The site is certainly comprehensive, I would estimate over 230 individual pages, however it can feel somewhat heavy to use at times with a lot of text. There are though some beautiful components of the site!  

Where do I fit?

This would be my favourite section. A very subjective grouping of Auckland suburbs into somewhat 'tongue in cheek' descriptors such as Greenies - Titirangi / Grey Lynn / Swanson / West Coast Beaches / Hauraki Gulf Islands / Kingsland, or Culture Vultures - Auckland City / Parnell / Takapuna / Ponsonby / Howick / Titirangi. Many suburbs cross over between different categories to demonstrate the eclectic nature of Auckland.

This feature reminded me of an excellent feature from the Australian suburb selection website CityHobo which defines suburbs by shoe brands - the suburb defined by Converse as opposed to Jimmy Choo! 

 

Suburb Sleuth

This feature provides a whole new slant on property searching online, something wholly missing from all other property portals, the ability to search by lifestyle and amenities, style and schools.

It's very cool and provides some great insight into opening up new ideas on where to live in Auckland. So if you place a greater importance on excellent schools, than say commute to the CBD then you can apply this to your suburb selection criteria before you invest time in reviewing property for sale.  When using this section don't forget to tick the 'Advanced Search' button - this allows you to not only select a region or environment but you can also specify how important that is, thereby allowing yourself to be open to explore new ares of Auckland.

 

As with most of the site the core driver of the user is to individual suburb pages which are the distillation of the original book, across the 50+ suburbs in Auckland. These pages provide a good personal evaluation of the character and characteristics of the suburb. The site is very clearly and non-apologetically commercially focussed to encourage you to buy the complete book (Where to live in Auckland $44.95 / The Streetwise Buyer $29.95) or at least a suburb profile $5 each.

 

The site will certainly appeal to all property buyers (and renters) across Auckland, however its greatest appeal I think will be to people new to Auckland and keen to better understand the region and the make up of the suburbs whether they come from around the country or from overseas.  

 

No review of the site would be complete without some critique after all I would be the first to concede that we can always improve upon something and learn from others, so here are a couple of pointers to make the site even better! 

  1. Property listing integration - Within each suburb page there is a link to view homes for sale in that suburb, this takes you off to the listing page on Trade Me for that suburb. A functional link, however these days integration and mashing of data can provide a richer user experience. Using the open read API from Trade Me would allow this site to showcase all the relevant properties on Trade Me in that suburb on this site, all dynamically integrated thereby adding to the appeal and relevance of the site. 

  2. The site hosts a page for each suburb providing a sense of the character as well as a separate page for the same suburb providing property price trends (How's my suburb performing?) . These pages provide no cross links and yet are so critically interlinked for someone using the site for fact finding on purchasing a property. Some simple cross links would help

  3. As this is a site helping you to answer the question of where to live in Auckland, there is a conspicuous lack of any dynamic maps to help you better contextualise the region or to provide a searching by map functionality. Also a simple search box to find a suburb again is conspicuously missing. 

  4. The suburb page that provides the key numbers on property prices per suburb needs to detail the source and date of the data. Property data is critically important but only when context is provided, such data is meaningless when it is out of date.

 

Overall I think Stephen Hart and the team at Barbican Publishing have done a great job to provide property buyers and sellers with yet more valuable information and services helping them become smarter. 

 


Some ideas on being a smarter buyer or seller

by Alistair Helm in


In addition to my articles here on Properazzi I also working with John Bolton at Squirrel, the property and mortgage experts. I am contributing some regular articles on subjects of interest to property buyers and sellers.

Here are a few more of theses articles which I think are of value especially to buyers and sellers : 

 

Access to finance to buy a house is not a right, shame though that is! 

Regardless of whether you find yourself in a position of having the now more appropriate 20% deposit to qualify for a mortgage or not, the fact is; access to mortgage finance is not a right. You need to treat it as with anything you want in life - as a challenge, which if you prepare appropriately for you will be more likely to succeed at. 

Also the new Reserve Bank LVR changes do not mean you cannot get a low deposit mortgage, they are available to the right borrower, so be the right borrower

Read more.... 

 

Buy First, or Sell First? 

It will be a situation you have been in potentially, finding the home of your dreams and you have not even got your property on the market or even in a suitable condition to sell!  

So the question is, is it better to be on the market with your own home and then start looking to buy or vis versa? Naturally there are pros and cons. Here are a few

Read more... 

 

The value in a property file

The standard documents that are considered critical in the property purchasing process are the legal title and the LIM, however I would add to this list the property file. This collection of documents held by the local council is a virtual treasure trove of valuable information, records and documents that amount to the potted history of the property. Well worth the time and minimal cost in examining and reviewing

Read more.... 


Unintended consequences of macro-prudential economic policy

by Alistair Helm in ,


Is the policy from the Reserve Bank an accelerant to an already volatile property market?

Is the policy from the Reserve Bank an accelerant to an already volatile property market?

It may be too early to tell, but I have a deep concern that the Reserve Bank may have unintentionally applied a volatile accelerant upon the property market just when what they wanted to do was quell the flames of a heated market.

Property sales when measured on an annualized basis are this month edging closer to 80,000. The rise in sales has been steady and progressive from the low in year to April 2011 when sales bottomed out at just below 55,000. This is a far cry from the heady days of 2007 when the market was overheated at well over 100,000 sales.

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What is more interesting is that the rate of growth in sales is slowing and has been for 9 months, slipping from 21% year on year growth to 14% year on year growth in the 12 months to July.

 

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The fact is that price follows sales in property market cycles and as sales slow and inventory builds which we certainly witnessed in the July data from the NZ Property Report so prices will ease.

So just as we start to see some meaningful easing in the market the Reserve Banks screams “Restrictions from the 1st October” and all those in the property market rush to the bank to secure a mortgage based on their current deposit of less than 20%.

Armed with this pre-approved mortgage willingly offered by the friendly banks who are only too happy to lend before the deadline these eager property buyers will be pouncing on almost any property they can on the basis that at least they can get a foothold on the property market.

All of this is fine if it ends up that these properties meet the needs of the buyer, however the fact an added surge in demand placed upon a still listings-short property market mixed with an exuberant real estate industry hell bent on auctioning anything that looks like a house with a 2 week marketing period is very likely to lead to buyers panicking. That panic could well lead to lapse due diligence, rash purchases of property ill-suited to buyers true needs and over-commitment of mortgage debt.

I hope this is not the case. I am not in the situation of being such a buyer, however when reading this excellent heartfelt opinion piece by Nadine Chalmers-Ross the host of TVNZ Business News, I was struck by the true feelings and anxiety of those who do feel disadvantaged by this new policy and who may be rushing as you read this to the bank to secure what might seem like a last desperate chance to grab a hand-hold on the property ladder. I just hope that the ladder is not engulfed in the flames fuelled by this latest move by the Reserve Bank, it would be a sad irony.


More insights on the property market and property buying

by Alistair Helm in , ,


In addition to my articles here on Properazzi I am also working with John Bolton at Squirrel, the property and mortgage experts. I am contributing some regular articles on subjects of interest to property buyers and sellers.

I thought I would highlight my most recent articles which I think are of value especially to buyers at this time and state of the property market: 

 

What does a Real Estate Agent actually do?

Love them or hate them real estate agents are as much a part of the real estate market as lawyers, mortgage brokers and open homes!

Each year around 80,000 properties are transacted in this country by licensed real estate agents as compared to around 9,000 properties being sold by their owner without the assistance of an agent.

The word agent is the colloquial term used to describe a group of professionals, legally known as licensed salespeople (as defined under the 2008 Real Estate Agents Act that governs and regulates the industry). What you and I call an agent, are salespeople who are required to work under the control and administration of a qualified licensee.

Read more.... 

 

Accepting the need to compromise is one of the lessons of property buying

As a prospective home buyer you are probably aware that there are three basic criteria that govern your choice of a house. No it is not the time-honoured and often quoted, Location, Location, Location. It is Price, Location and Size. These three criteria are equally as important in driving your buying decision; yet sadly it is often not possible to optimize for all three at the same time. So dealing with this dilemma is one of the keys to smart property buying.

The driver of location; where to live is often the most important decision for buying a property. This often results from the need to live close to work, or more commonly these days as a function of school zoning. We all naturally want to live in a great suburb or town; a safe environment with great amenities and friendly neighbours. Going on at this rate will make you believe that Wisteria Lane might actually exist and those Desperate Housewives may turn out to be your neighbour!

Read more.... 

 

Making sense of property data to help you know when to buy or sell

Lies, damned lies, and statistics" is a phrase describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments. That is how Wikipedia speaks to statistics and I sense that it is also a perspective that many people take when it comes to property data.

We seem to be constantly being bombarded with the latest set of data for what we are told is the true picture of the property market in New Zealand, however given the multitude of sources and names attributed to these statistics it is often difficult to know what statistics matter and what measures you should use to tell you when it is a good time to buy or sell.

Read more.... 

 


Frustration with auction process boils over

by Alistair Helm in ,


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With auctions being the most favoured method of sale by real estate agents and close to 1 in 4 of all Auckland properties being sold by auction, the casual observer would think, that was going on in the Auckland property market was a highly efficient representation of a perfectly functioning market.

That may well be the case with many of these property sales. However as was brought to my attention by a recent communication from a highly frustrated buyer; the process of buying at auction can be so fraught with frustration and concern over professional practices that in the case with this specific buyer, it can lead to a decision that enough was enough and they are not going to attend any more auctions in the search for their new home.

I want to highlight the details shared with me by this buyer to bring to the fore questions about auction practices and give voice to this buyer as a process of informing others. Naturally the buyer in question desires to remain anonymous for as they say “We don't want (to make) enemies when trying to purchase our next home. Whilst you may not agree wit the thoughts and beliefs of this buyer or you may not think their circumstances are representative, I would like to say that I have verified the authenticity of the person. I do recognise that this is but one incident from many hundreds of auctions transacted each month, however from my personal experience and comments from others both from within the industry and outside I don’t feel what is voiced here is a completely unique experience.

My intention in bringing this to light is to hopefully to encourage others to share their experiences in alignment or in contrary position to this buyer.

The Story

The buyer states that they have been active in looking for an Auckland property for the past 9 months and by their own judgment they are exhausted.

They attended an auction recently, not their first such auction as they state that they have attended close to 50 auctions and feel that they are a bit depressing.

This buyer was the only bidder on the property and made the first bid. Without any other bidders the auctioneer entered a vendor bid. A follow up bid was made by our buyer. At that point one of the agents in the room went up to a couple in the corner and spoke to them for about 2 minutes while the auction paused. The next action was that this second couple in the corner placed a bid $25k higher. Our buyer recognised this as a competing bid, but there was a concern that there was something slightly suspicious given the length of the pause in the proceedings. Our buyer responded and raised their bid by 10k and the agent went back to converse with the other couple and got them to raise by another 25k.

Then things got very strange. Suddenly 2 other agents swarmed around our buyer and started ‘in our face non stop pressuring’ to raise their bid by another $25k. Our buyer was prepared to bid again but offered a further $10k, not the $25k. The auctioneer refused the bid stating that the minimum was $25k!!

At this point our buyer decided to back down. The auction was passed-in with the other couple not raising their bid.

The actions of the agents as judged by our buyer had caused, what they felt was undue pressure. They felt that the auction had been staged to bring the other couple into the process just to raise the bidding. They felt that the agent’s actions in applying pressure on them was judged to be highly irritating and tantamount to bullying. The property passed-in with the strange couple being the highest bidders who were not then successful in negotiating.

Our buyer felt that there was no other serious interest in the property apart from themselves and in their opinion the other couple were brought in to artificially hike the price, so that the agent could go back to the market and say there were buyers willing to pay $x to buy the house.

To support this view the buyer states that the day before the auction the agent had said they expected 4 active bidders. On the day of the auction in the morning they said there were 3 active bidders. Moments before the auction just as they were going in our buyer again asked how many bidders there were? The agent was in their words coy about it, stated ‘yourselves’ and we expect to see others come in shortly.

After the auction the buyer states that the agent treated them like "you have served your purpose, you took it up to a stage, now I can negotiate with that as a base to the wider market and don't require you, bye". Not even a single thanks for coming to the auction. Our buyer felt the whole process was more about how much more can the agent can squeeze out of them. The whole thing, atmosphere, behaviour and everything about the event just made them cringe and plagued them for the next day before they wrote to me. As they said “I just cannot get yesterday out of my head, it was just bizarre beyond belief”.

The buyer recognised that they had nothing to back up their suspicion other than a gut feeling and the feeling of something not being totally right about the way the auction went. They definitely felt that in that moment they felt trapped, cornered and under pressure to compete against a bidder whom they had a suspicion was not a real bidder (the only other bidder).

What to do? 

The buyer asked me what should they do?

My response was to state that the industry is governed by the Real Estate Agents Authority (REAA) who spell out on their website the procedures open to you to complain about any person involved in real estate. You could complain to the real estate company who held the auction or the REAA direct.

As I read the REAA code of conduct the agents involved in this auction breached clause 9.2 which states "A licensee must not engage in any conduct that would put a prospective client, client or customer under undue or unfair pressure" Certainly from their description I believe that this buyer was put under pressure. I think also the pressure for them to bid by $25k when the auctioneer had accepted a $10k incremental bid by them just before, again could be interpreted as undue pressure.

I think this situation highlights some concerning aspects of the auction process:

  1. The event of an auction is highly charged and highly pressured. Agents defend this in stating that their role is to represent the vendor and seek the highest price, however I think there should be a professional duty of care to ensure that auctions are not unduly pressured affairs and that ‘breathing time’ be allowed. A normal negotiated sale allows buyers and vendors to consider the process and their offer. The auction process has become so mechanized that agencies try and cram 20 auctions into an hour in a packed auction room – is this fair or appropriate?

  2. The manner of agents “circling” bidders to try and illicit bids and to encourage speedy decisions I think is inappropriate.  A bidder should be allowed space and privacy to reflect and consider. If they choose to have professional help then that is fine but agents (all of whom) are on the side of the vendor hustling buyers is not appropriate.

  3. Vendor bids should be eradicated. The purpose of an auction is to in one place and at one time gather together willing buyers to bid in a public and open manner. The interjection of what is called a vendor bid (even if it is publicly announced) is irrelevant at best and massively confusing at worst. If the competitive bidding by the assembled buyers does not see the bidding reach the reserve then the property should be passed-in (allowing recourse to the vendor) – the auctioneer throwing up vendor bids never changes the outcome.

  4. Bidders at an auction should be required to register and be assigned a visible number through which they bid. This would improve professionalism and ensure that the agents and vendor has the benefit of knowing how many active bidders there are and who they are. This component of due-diligence would instantly remove the doubt created as in the scenario outlined above.

The fact is that auctions can be an effective and valuable process for selling real estate as is demonstrated not only in NZ but around the world, however I think that the whole market of auctions has got ahead of itself and as I wrote recently got out of hand, with a sense of a production line fueled by real estate agents seeking to hype the market. A cool head whilst all around them seems to be in heated turmoil would be good to see within the real estate industry – please!

 


Changes in house insurance - will it change our view of property CV's?

by Alistair Helm in ,


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We still seem to believe that the CV or Capital Value of the property is the benchmark by which we should judge property prices. Such was the focus on the Campbell Live article this week when judging the rights and wrongs of the Transport Agency for selling houses at what some consider unacceptably high prices “as compared to their CV”. Houses which they had purchased to facilitate the process in the construction of the new Western motorway connection in Auckland. My views on this specific matter were perfectly aligned to those expressed and articulated on the blog post by Open2View – enough said.

It does though demonstrate a continued practice by the media fixating on the sale price as compared to CV. Well I sense a coming ‘rude-awakening’ for a lot of people when instead of relying on the computer algorithm of QV to establish a benchmark of ratable value as a notional 'valuation' we instead may well turn to a more logical measure – the cost of rebuilding an existing house.

Now I know that just as a brand new Toyota Corolla costs around $35,000 whereas a 5 year old one costs around $12,000. A new house costs more than an older house due to the current cost of materials and labour being the determinant of the cost of a new house, whereas a ‘second-hand’ house costs what a willing buyer is prepared and a willing seller readily accepts.

But given the changes to the way the insurance industry views property insurance in the post-Christchurch earthquake world, we all will need to look at our property measured against the cost of replacement.

The industry has been undertaking an advertising campaign to highlight just this matter and gain an appreciation by homeowners as to the cost of replacement of a house. Because you cannot simply ignore this issue as it will effect every person that owns a house and has property insurance.

Whereas in the past your insurance cover could be purchased as a replacement cost with no defining financial number – now all such policies need to stipulate the cost of full replacement. That full replacement also has to cover the costs of demolition and clearing the site ready for rebuilding. Your insurance premiums will be assessed on that replacement cost and should the worst event occur of a fire or other disaster the insurance company will only pay out to the maximum of the defined cost of replacement, which if you have under estimated will leave you to foot the bill for the balance to get your house rebuilt.

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Just to demonstrate just how this change will impact insurance and homeowners' appreciation of the value of their home, let me take you through an example of a property which I visited at an open home recently.

The home In the highly popular suburb of Grey Lynn has a Capital Value of $870,000 which is made up of a land value of $590,000 and improvements of $280,000. These improvements are defined as the building and all that exists on the bear land.

I went through the Home Rebuilding Cost Calculator to estimate the total cost of replacing this property. A highly detailed and lengthy exercise which does require a fair degree of appreciation of the details of your home’s construction.

The calculator came back with an estimate of $400,487 which includes GST and also an allowance for professional fees, demolition and removal of debris from the site.

 

Interesting that the CV for this property assessed the land at a value of $590,000 and the building at $280,000 yet the replacement cost of the building is estimated at $400,487. If the value of the land is appropriate (which is more likely to be the case) at $590,000 then the total 'value' of the land and building is very close to $1 million.

You are I am sure, interested to know the market value of the property today based on that well established notion of a "willing buyer and a willing seller". Well the property was sold recently for $1,395,000. This would therefore tells us that the value of land in this area is actually appreciated by 68% since the last assessment was undertaken in 2010/2011 – Auckland, or at least this area of Auckland is experiencing unprecedented demand.

Note:

I was prompted to write this article by the comment sent to me by a retired Quantity Surveyor who had read my article on why we should get rid of CV’s, he rightly asked the question as to whether people had considered what the long term effect will be on property / sales valuations once the insurance industry changes over to declared values for house insurance policies. He stated that as he had his own construction business engaging in construction of architecturally designed houses & spec housing. Many of the houses that he built had construction costs of more than double what the current CV values were & he rightly wondered once owners start realising that replacement costs far exceed the CV's for there property, that they will start to try & negotiate selling prices based on replacement costs.

He reflected that this might well apply more to expensive architecturally designed properties, but in his experience all building costs usually exceeds CV values due too as most property valuations are based on historical values & consequently out of date.

I am grateful for being prompted by this question and would gladly welcome any other such questions for future articles.

 


Advice for property buyers

by Alistair Helm in


In addition to my articles here on Properazzi I am also working with John Bolton at Squirrel, the property and mortgage experts. I am contributing some regular articles on subjects of interest to property buyers and sellers.

I thought I would highlight my most recent articles which I think are of value especially to buyers at this time and state of the property market: 

 

Auctions - some thoughts on psychology

If you have ever attended a property auction you are sur to have though about the best way to approach bidding and the right tactics to use to win on the day. I was watching an intro video to an auction recently and it finished by saying "good luck" in today's auction - I thought you should never rely on good luck. So here is an article about what I see as the psychology of bidding at auctions and some tactics to try - not full-proof or guaranteed for success but worth going for!

 

As a buyer what should you expect from your agent?

I think we all know (or we should know) that agents work for vendors because they are retained and paid by the agent a commission on the successful unconditional sale of their property and therefore always have the vendors best interests uppermost. For the buyer it is very important to know what to expect from an agent in the NZ property market, so here are some tips and advice in this article now published on the Squirrel website

 

 

Don't hibernate as winter weather approaches - be a smart buyer

We are a nation of propert hunters who love to flock round open-homes on sunny afternoons, as a serious buyer don't get drawn into this behaviour, be a contrarian, pound the streets on cold rainy wet winter days as this could be the best time to search for property and is a smart time to buy. Property sales don't fluctuate much over the winter months despite what you may think and whilst many sellers wait until the spring weather arrives before listing their house, there are many houses to choose from that get listed during the winter months, many by people who are to use the phrase "seriously motivated" to sell - have a read of the full article 

 


Blink and you’ve bought a house

by Alistair Helm in


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Not quite that literally; but the fact is you may have bought the house you live in or another house previously with a decision made in the blink of an eye!

During a recent vacation I reveled in reading the bestseller Blink by Malcolm Gladwell and was fascinated by the examples and facts around our human abilities developed over time to make highly effective decisions with very little time or available information.

It reminded me of the many times that over the years people recount that the moment they stepped into a house at a viewing or open home – they knew this was the home that they wanted.

In a world so rich with information it seems almost at odds with logic to be making such a massive and financially significant decision based on an emotional gut-feel. People do and people will continue to do this.

Whilst I have no factual data I am sure that on reflection people collectively spend more time evaluating holiday options or the next large screen TV than they would do in finding the next house – why is this the case?

For one thing, the market for property is not a "perfect market" - that is to simply say not all the property is available to buy at any one time. When I search for a TV, I can be sure in using the web that I can see all of what is available and know that I can buy what I want. With houses, the very house I really want may well not even be on the market so you have to accept a limited pool of available property and then there is never the case that there is “4 of number 45 North Street in stock today” – there is only ever one house – once sold it is gone.

Property is also one of the most infrequent purchases, some people buy just one or two houses in their lifetime – others (the more typical buyers) may buy 5 in a lifetime. This infrequency has two consequential impacts. Firstly infrequent activity tends to lead to not being able to develop and refine skills, and then secondly such infrequency leads to a suppression of the traditional buyers remorse. We psychologically don’t really want to dwell on the purchase decision; as to change your mind once you have made your decision and committed to buy a property it is very difficult to back out or switch houses after a couple of weeks, unlike the buyer remorse with clothes, equipment or even a car!

To add to this analysis of buyer behaviour I came across a great piece of analysis from Redfin in the US. They are a smart tech-focused real estate company who often undertake analysis of their extensive database. This recent analysis titled “In home search, Men are from Mars and Women from Venus… Sometimes” found that men are more likely (71%) to be more analytical about home purchase than women (58%). Further insight showed that men view around 11% more listings in detail and have 8% more saved searches and view 38% more information about inspections, lenders and lawyers. So this would support the hypothesis that men are more objective and analytical about the home purchase, yet as we know women tend to be more influential in property purchase decisions.

I think in summary to quote a piece from the book Blink “We live in a world saturated with information. We have virtually unlimited amounts of data at our fingertips at all times, and we’re well versed in the arguments about the dangers of not knowing enough and not doing our homework. But what I have sensed is an enormous frustration with the unexpected costs of knowing too much, of being inundated with information. We have come to confuse information with understanding.

There is a wealth of information about real estate and property, however that is never the deciding factor - it is a key part of the decision making process, when it comes to the final decision all of us when buying a home tend to let our heart rule or head.


The affordable housing solution from the UK - for under $20k!

by Alistair Helm in


Exterior Finnforest Finnlife Helsinki Log Cabin - 10x5-1.jpg

We have to be able to build affordable homes in NZ – that has been the political cries of the past few months – well maybe there is an answer.

For just $20,000 (plus shipping costs) we could have this 30m2, 5 room flatpack log cabin from Tesco in the UK!

For less than it seems to costs to get consents to start work building a house in NZ you seen to be able to have a whole one in the UK!!

Now I confess this whole thing is a bit tongue in cheek, there is no way that this could be considered a livable house or that you would not need appropriate consents and approvals as well as connected utility services. However I think there is a bigger point to be made here than just a bit of a light hearted headline “Is this the answer to the #HousingCrisis? £9,999 flat-pack from Tesco

Why is it that in a country that produces so much construction lumbar and ships it in raw logs overseas can we not turn our hand to creating this type of solution? There are certainly sleepouts and cabins for sale in NZ. But look for just a minute at the detail in this flat-pack cabin.

Front door and window Finnforest Finnlife Helsinki Log Cabin - 10x5.jpg
Interior Finnforest Finnlife Helsinki Log Cabin - 10x5-2.jpg
Plan Finnforest Finnlife Helsinki Log Cabin - 10x5-3.jpg

It is described as luxurious – it has 5 rooms with an upstairs storage area, it has shingle roof tiles, 8 toughened double glazed windows – the walls are 44mm thick interlocking wall boards.

This is a product which demonstrates what can be achieved when you apply modular design with mass production techniques. The massive population markets of Europe make this a possible solution to be made in the UK, but could we not apply the techniques to our geography and build and export a similar higher spec version complete with services for less than $100k?

This cabin is not the solution to NZ housing crisis or affordability issue but it should be viewed more as a lightening rod  to challenge and stimulate thinking about the issue with a new pair of eyes.


The great Auction debate!

by Alistair Helm in ,


Transient

The property market (in Auckland at least) is running hot, so the reports of late have focused on the extent to which auctions are the preferred means of selling a property. The report from REINZ for September stated that 37% of Auckland properties were sold by auction.

The question I want to ask (and answer) is whether auction is the right selling method?

Firstly there is a difference between 'auctions' as a selling method and 'property sold at auction'. Today there are 1,428 of the 9,329 Auckland properties on the market being marketed as auctions. That is just 15% of all property on the market in the region. That would imply that auction properties are selling at over twice the rate of non-auctions!? - not quite.

Not all of these properties currently being marketed as auctions will eventually go to auction, and equally not all of them will “sell-under-the-hammer”, however from my experience and attendance at various auctions there seems to be a reporting of all property sales which were marketed as auctions being defined as sold-by-auction in the data regardless whether the sale was pre the auction, at the auction or after the auction.

Lets look at the pros and cons of auctions. In making this evaluation I have taken the viewpoint of a property owner reviewing the method of sale with an agent in order to provide this opinion.

In favour of an auction

An auction is a theatrical event, the opportunity for the real estate industry to showcase their skills in their natural setting. It is an event that forces buyers to be exposed to the worst of the emotional rollercoaster associated with the “heart vs head” property buying decision. As a seller you should be delighted to hear this!

As a vendor it brings the property sale process to a finite point where the “market” has to make the decision – is there someone out there who is prepared to buy this house at an acceptable price?. This finite-time sale period is great for focusing the marketing activity to generate maximum interest and standout of the property in the market.

Auctions enforce an unconditional legal sale at the fall of the hammer (if the property is ‘on-the-market’ with the reserve price achieved) this ensures certainty for sellers looking to be able to make a purchase decision on their next house.

An auction has the ability to hype the selling price as the emotional event of the auction can lead to aggressive and highly competitive bidding if the property can attract sufficient willing and able bidders.

Against an auction

An auction can exclude a certain segment of buyers who are unable to be in a position to bid, they may not have the necessary deposit or the financial pre-approval. They may also be excluded as they have other conditions which are not able to be a part of a bidding process.

An auction is a very public spectacle that can have the effect of bringing your property sale process crashing back down to earth if (a) nobody bids, or (b) the bidding falls short of the reserve. The buyer community attending such an auction are very aware of what the ‘market’ has stated in regard to the property and can use that to its advantage.

Once you have chosen the auction as a path to marketing your property, you have played that card and have to accept that you cannot re-play it. The next move is withdraw the property or market it as a normal property for sale.

On balance I am not fond of auctions.

In my view an auction most favours the selling agent as the process drives a specific time-bound event that seeks an outcome that drives an unconditional sale and this is what delivers income for agents. To be clear I am not saying that agents are so single minded in driving auctions that they omit the primary requirements of service and presentation, I just believe there is a vested interest.

As stated, an auction allows the agent to create a theatrical event that showcases their skills and builds their brand presence within their target audience.

Auctions tend to suit property sales in higher density areas of the country; that being the reason why Auckland sees the vast majority of auctions across the country. As of today there are 2,539 properties being marketed as auctions across the country, 56% of which are in Auckland. I did read once an academic paper that stated that auctions don’t work (from a purely theoretical psychological perspective) unless you have an urban population of at least 800,000 to create the competitive tension to fuel an auction.

Auctions tend to work best in markets that are seeing strong demand and limited supply – the classic territory of a seller’s market; as we are currently experiencing in certain areas of the country.

Auctions tend to work to favour property around the median price for the area as there tend to be more buyers for these properties. That is not to say high priced property don’t perform well at auction however the key is a strong and active buyer pool, who are in the financial situation to be able to bid.

There are a couple of personal pieces of advice I would offer if you are a buyer forced to participate in a forthcoming auction.

  1. Flag your interest in the property early with the agent. You will not loose any negotiating position but will ensure you are kept informed should circumstances change and also allow you time to review the documents
  2. Negotiate the deposit in advance of the auction – you can request that the vendor enter an agreement to allow you to bid based on a lower deposit. A Seller would rather have an extra bidder who is paying 5% deposit as opposed to 10% than no bidder at all.
  3. On the same note try and negotiate any other conditions you would like, the one I like is a different settlement date. Get these agreed in a signed side agreement that allows you more flexibility to bid.
  4. Be in control at the auction, a friendly agent offering advice is not working for you unless you are paying them – they are being paid / motivated by the vendor. Their objective in offering you advice is firstly a sale and secondly a higher price. If you want a professional to work for you to manage the auction to your benefit pay an agent yourself – nothing of value comes for free.