Better data could assist our collective understanding of the property market

A couple of news stories today prompted me to call for the access to better information on buyers in the property market to dispel what amount to pure speculation on matters such as the extent of overseas buyers buying investment properties in NZ.

The first such article in the National Business Review was by Jason Krupp of the New Zealand Initiative titled "Housing needs a flaming brand!" and then Bernard Hickey weighed in on the same topic "An ugly housing vacuum" - both articles decry the lack of hard data. Both good articles, however both bemoan the lack of good data on which to make critical decisions.

This desire to seek hard statistics resonates so well with me and it is something that I have long argued for. However I do not advocate the proposal from Jason that we should let the demands of a political organisation spearhead this information request, nor as Bernard advocates seek the input of the Reserve Bank. No, the request should be made to the organisation best placed to collate such information, yet which seem so oblivious to the value it would generate, I speak of the Real Estate Institute.

The current BNZ / REINZ survey is an embarrassment in my opinion. Whilst well intentioned and clearly a source of some data, it is weak. Look at the facts. The email survey is sent to 10,000 real estate agents and the response varies between 300 and 600 per month - that's barely 5% of the agents. The key question has to be asked why is this and who is responding? - is this survey completed by active successful agents or those simply with time on their hands?

The Real Estate Institute currently collects monthly sales data for every property sold in NZ by a licensed agent who works for a licensee company who is a member of REINZ (estimated to be 95+% of all licensees). Sadly the data set required in this current process is woeful at best, comprising:

• Property Address
• Property Type
• Number of Bedrooms
• Sale Price
• Sale date
• Listed date

What is also appalling in my opinion, is that this data is not aligned to the original listing data which is submitted when the property goes on the market to the property portals, especially Realestate.co.nz in which REINZ holds a 50% stake.

An integration of listing and sales data into a single database would avoid duplication and provide rich data. It has been a discussion point within the industry for many years (over 3 years to my knowledge). Such a database could open up new data sets such as:

1. How long property really takes to sell - the current "days on the market" stat produced by REINZ is actually only  a reflection of how long it took to sell the property by the current selling agent, bearing no relevance to when the property was first marketed which may have involved a number of agents before its eventual sale

2. Asking price to eventual sale price index. All properties require an inouted price range to activate property portals search price function and this drives the asking price data

3. Asking price modifications during the period on the market

4. Property marketing methodology analysis - auction clearance rate / passed-in action to subsequent sale data

5. Buyer interest measured by page views & enquiry emails to sales time and price performance

6. Property marketing to sales performance analysis

7. Inventory data at suburb / school zone level

As well as this potentially beneficial data integration the Real Estate could instigate an email survey in a confidential manner (organised by a 3rd party company) based on the vendor's email supplied by the selling agent. In this survey the data that is so urgently required could be sought:

1. Profile of buyer - demographic

2. Profile of buyer - 1st home / investment / retirement

3. Reason for purchase

4. Financial arrangements

5. Prior address - indications of migration data

6. NZ national living in NZ or international investor / ex-pat kiwi

In addition to this valuable data, by the use of a confidential 3rd party company, the survey could also evaluate in an objective manner the performance of the agent as is done by some real estate associations in the US, notably the Houston Association of Realtors. 

By effectively distancing this survey from the selling agent (they would not be the best people to collect data) the data confidentiality could be ensured and the aggregated data anonymised which would be of huge benefit.

In my opinion these incremental data sets would serve to add value to better understand the property market and allow economic issues to be discussed in an objective manner rather than be hijacked by political organisations. Added to which this rich data would be of great value to the Real Estate Institute in building credibility in the industry and the organisation.

Is virtual reality a disruptive technology for real estate?

I have a sense that by the weekend the term 'virtual reality' and the company Oculus VR will be better known than it was a week ago. When Facebook plonks down $2billion in stock and cash to by a technology company it makes news, not as much as spending $19billion buying WhatsApp, but $2billion is a large amount of money for a company who are still only in a beta stage of development for their VR device.

In the context of real estate the question has to be asked as to the impact this technology might have for the future and could it in anyway advance Facebook's role in the industry. In short, I don't think so.

I know there will be those who hold the view that property viewings could become an immersive experience through this type of device whilst sitting on the couch - with the added benefit of being able to create alternative decor and style to a property for sale. This will certainly be within the capability of the technology I have no doubt. However I sense that being able to have people 'walk though' a recreated virtual version of a home will be of greater value to interior designers, architects and make-over services than to real estate agents.

The virtual reality experience is merely to real estate another version of the photo portfolio, another optional version to complement virtual tours and video tours. The fact is that property inspections in person at an open home are the only true way to experience a property before making that hard and tortuous decision to invest in a property.

I would therefore urge real estate agents and companies to save their tech funds and not rush out to start creating virtual reality portfolios of their listings. Photos are more than adequate to provide the incentive to drive viewings.

Just to avoid confusion there is a distinct difference between the Virtual Reality of Oculus VR and their immersive headset and the more practical and relevant Augmented Reality which as a service has been around for many years mashing together the smartphone property data through geo-locational data to overlay valuable information as you look at properties whilst out and about - that is smart technology of value to the real estate industry.

TV advertising in real estate

TV in this country is still the number one media-of-choice when it comes to advertising; accounting for just over a quarter of all advertising spend in the past year. However it is fast being caught by online which sits just over 20% and has risen from less than 1% nine years ago. In dollar terms over the period from 2004 online has gone from a spend of $15m to $471m; whilst TV has gone from $643m to $634m!

Having foretold the potential demise of TV advertising, there is no doubt it remains a very creative medium, ever more so these days as the content has effectively become detached from the delivery medium be it TV, YouTube, Facebook or just viral social sharing.

When it comes to the real estate industry TV or at least video as a package appears to be being used more and more. I commented recently on the advertising campaigns being undertaken by both Trade Me Property and Realestate.co.nz, neither of which for me really made an impression, certainly not enough to make me want to share the content or discuss with friends. 

Over the past month I have been aware of a number of differing approaches to video/TV adverts within real estate across the world, I thought it would be fun to share these and comment on the execution.

Let's start with a real estate company TV commercial. Coldwell Banker is one of the heavy weight players in the US as well as operating in over 51 countries.

Simple concept - take decent handful of happy people enjoying life around a house, add slick editing and slow motion effects place over classic Motley Crue track "Home Sweet Home" and bake in the editing suite for 20 minutes!

This advert has to be the best example of the pure generic advert where the brand is lost and instantly forgettable - switch out the end-frame and you have a commercial for any real estate company, or a life insurance company for that matter. Sure every real estate company would like to think that every one of their clients wants to think, look, feel and live like the actors in the commercial, but the emotion created in the advert is for the home, not the agency. 

Here on the other hand is a very different approach from a UK based real estate company Douglas & Gordon. Created a couple of years ago now and made entirely for online sharing this spoof parody of a real estate firm is distinctly memorable, although again a generic spoof with no brand reference!  

The recurring issue for real estate companies in their advertising is how to establish a point of difference. The feelings they want to engender in their clients has nothing to do with how they operate and everything to do with the outcome of the new home.

From real estate companies, lets turn to property portals. I mentioned earlier the two recent campaigns from NZ; in the USA the market is likely to be heating up significantly with two of the leading players Zillow and Trulia about to slug it out with a total war chest between them of close to US$100m this year alone!

Trulia rolled out their campaign with what they call "Moment of Trulia".

There are many of the same issues here as with the Coldwell Banker advert - what you might call "The path to happy house buying". Trulia does deliver mobile searching and insights into neighbourhoods but the message is till wrapped in the slick edit of "happy home owners".

Zillow began their heavyweight campaign last year with a 'tear-jerker' of a commercial which certainly had in equal measure fans and distractors.

I thought it was a great advert, loads of functional features that make Zillow a great tool for home finding and discovery, love or hate the ending I think the advert works and would make me use Zillow.

From the slick and some would say somewhat 'sickly' US commercials here is a new commercial from the leading Indian property portal MagicBricks. Be aware the advert is not in english but I think you will understand the message pretty well.

I think there is a smart campaign idea here, an iconic and somewhat spoof real estate person and his sidekick James Bond to be the super sleuth of property search pitched against the insight offered by MagicBricks - distinctive, memorable and funny! It is distinctive and for advertising to be effective it needs to create "cut-through" and be memorable and distinctive - this one gets my vote.

From property portals lets look at another side of the industry, that of organisations. Here I think I have found an excellent advert from Canada from the Canadian Real Estate Association.

It is different and the message comes across so well to me - why take a risk of not using an agent?!

And finally to end on a upbeat and happy note - the new industry organisation for young professionals in real estate (YPIRE) have developed a wonderful take on a popular music video by Pharrell Williams - Happy. The video is not trying to send a distinct message but for me it made me think for a minute about the image of real estate agents - no they can't all be like those in the video, but real estate is all about emotion and the best emotion is happiness!

Can real estate really be disrupted?

A couple of weeks ago I posed the question as to "Why has real estate sidestepped the technical transformation of the digital age?" and in so doing provided a couple of key reasons why it is hard to disrupt this industry as so many other industries have been disrupted through technology. The fact is, at its heart, real estate is a deeply emotional service-based business which due to it infrequency is tough to challenge.

Over the years there have been noble challengers to this billion dollar industry, most notable was The Joneses back in 2008. Their demise in my opinion was not their core business model of a flat fee service and salaried agents. Their downfall was simply bad financial management which meant that they simply ran out of money just before they reached critical mass, which they were certainly approaching at pace. They were certainly also not assisted by a property market that went into a nose dive at that time and a fair amount adverse undermining from the established industry players. In my view the model if rekindled today with adequate funding could make a serious dent in the market. After all who cannot relate to the strap line of "Flat Fee - Not Fat Fee" - their flat fee at the time was just $7,999! - any house anywhere.

In the UK only this week we have seen a new challenger announce a new service of real estate (yet to be launched) which could be a serious disrupter in the market - welcome easyProperty. Leveraging the ubiquitous brand of easy as in easyJet / easyCar / easyHotel / easyBus / easyPizza - you get the idea! this new company is seeking to shake up the real estate industry starting with property management and then addressing sales. From sketchy information so far the principle seems to be that easyProperty will charge 0% commission on sale of property, looking to earn income from referral and ancillary services wrapped around the processes of real estate. That is certainly a possible method for the UK where agents do not undertake such an extensive service as in NZ but then they only charge on average 1.8% commission as compared to NZ commissions of 3%.

As well as the marketing strength of the easy brand which claims a 99% brand awareness in the UK, the new company has secured as Chairman Harry Hill who was the former boss of the largest real estate firm in the UK Countrywide. as well as one of the founders of the leading real estate portal Rightmove. 

I would judge this is a serious venture and has the funding to get this new venture off the ground, as to the full details of how the service will work we will just have to see in the coming months.

What relevance could this type of move have for NZ?

Well I would have to say that there are two NZ brands that in someways mirror the easy brand. The first has already entered the real estate market a couple of years ago - Mike Pero Real Estate. The Mike Pero brand is extremely well known however their business model in real estate is not radical and could hardly be called disruptive. It professes to be a champion of low fees but in reality the differential is modest at best and in all other aspects, their services are a cut and paste of every other real estate brand.

The other brand is Trade Me. They currently dominate the advertising service sector of the real estate industry gradually eating away at the c. $100 million a year industry still so tightly held by newspapers and magazines, but imagine for a minute the appeal of a full service real estate company provided by Trade Me - tapping into the $1,300 million a year commission industry - even if they were to discount this by offering a Flat Fee - not a Fat Fee. Food for thought!

Can an agent achieve a higher price than a private sale?

This is an age-old question and one that will generate opposing responses based on the perspective of the responder. A few moments spent on the Trade Me forum category of real estate would have you believing that private sales were a viable option and given the projected saving of many tens of thousands of dollars in commission thereby seeing the seller better off than by using an agent; although they would be hard pushed to say that they achieved a higher selling price than an agent.

Conversely a conversation with an agent would generate a response reflective of the competitive tension that an agent can generate between competing buyers such that the agent will secure the best price which would be the highest price attainable in the market. The latter caveat being very important.

For like it or not, the fact is that there is no evidential way to prove that an agent can secure a higher price than a private seller. The fact is that the price attained for a property is governed by a unique set of circumstances that can never be replicated. There is no such thing as a ‘Control’ in real estate.

What I mean by this is that in the scientific faculty everything is evinced by a Control by which any experiment is measured. Testing of drugs, improvements in battery technology, new microchip technology all of which are assessed by a Control that allows scientists to say that this version B is x% better than version A.

In real estate this is not possible. No two houses are identical; for whilst they may be two identical apartments or two town houses or even two 3 bedroom family homes in the same street, each will be different as a function of their orientation, conditions or layout. Mix into this the very unique circumstance of the buyer pool that is so small for any property and you begin to realise that every transaction is a very unique set of circumstances that occur at a point in time and can never be replicated.

Think for a moment about the sale of a particular property. Could it achieve the same sale price a week later? In theory yes, but the probability is that it would not as the price that was achieved was a function of the buyer pool at that moment in time, a day later, a week later and one or more of those buyers might have exited the market having bought another another house and equally a new buyer or set of buyers might have appeared as they suddenly became ready to make a purchase decision.

So unlike the ability to set up an experiment to test price sensitivity for a consumer product in two supermarkets in different areas of the country to test demand the property market does not afford such controls. It is therefore impossible for anyone to say that they could achieve a higher price than anyone else. The price achieved for the sale of a property is a function entirely of two aspects of the property selling process.

Maximum exposure

The ability to achieve maximum exposure of the property for sale within the buyer pool is critical to engage and motivate prospective buyers to review the property. Any lost opportunity in this area is potentially the most damaging to the sale process and impact the sale and the sale price. Exposure is not simply being on the web, it also goes to the presentation of content with particular focus on the images of the property and how they are laid out.

Competitive tension

The ability to motivate the prospective buyer pool to actively compete to challenge one another to buy the property is key to a successful sale price. This does not assume that the only method of creating competitive tension is an auction although this can be an effective public tool to create emotional tension. A standard well facilitated negotiation between active buyers is just as likely to achieve a favourable result as would a tender. The key to creating competitive tension is the facilitation process which is in someways the greatest skill and attribute of a professional real estate sales person - the ability to maintain buyer interest and bring buyers literally to the table to make an offer and to be motivated to stretch to challenge competing offers so that the final offer meets or exceeds the expectation of the seller.

There is no doubt that the component of the property selling process comprising creating maximum exposure has in many ways been taken out of the hands of the real estate agent as the online medium is the aggregation of this exposure through sites like Trade Me Property and Realesatate, however to fully optimise the potential to achieve the best result for the seller the role of the agent is hard to ignore or dismiss as it would take a unique set of skills for a private seller to replicate this capability.