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.

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.  

The industry 'circles the wagons' around Realestate.co.nz

by Alistair Helm in

The real estate industry has been rallying around their industry owned website since the radical price change implemented by Trade Me Property a year ago, in a manner somewhat akin to circling the wagons. 

The resultant boycott, although somewhat patchy on a regional basis, has seen the relative strength of Trade Me Property slip from what must have been 100% of licensed agent’s listings to around 75% - a figure that does not seem to have changed much over recent months.

The real estate industry may judge the initiative a success. However the messaging within the industry around the role of the industry owned website may need some refining as a recent video by a loyal and passionate real estate licensee shows.

The video entitled “Support Realestate.co.nz !“ is a somewhat tongue-in-cheek news alert to fellow real estate agents which uses the analogy of “not putting all your eggs in one basket”.


Here is the script of the video:  

“Hi, I’m Dave Umbers, I’m a real estate agent, salesperson, licensee, principle. Short message for you all today.

Our industry needs your support, our industry is Realestate.co.nz, these eggs here they represent our listings, if we give them away to someone else to look after we loose control of those eggs. So, keep our own eggs in our own basket by putting them all on Realestate.co.nz. Your business will flourish, our industry will have a future, and everybody will be much much happier.

I’m Dave Umbers, please, please I urge you, this is our website Realestate.co.nz. It’s the goose that lays the golden egg.”

Whilst Dave Umbers begins the video with a statement that “This message is unsolicited” the intention is clearly to spread the word widely within the real estate community and seek unified support to bolster the standing of the industry site. 

I find his analogy of the egg basket very interesting. To suggest that placing listings on Trade Me Property is in someway akin to putting all your eggs in one basket is in my opinion naive at best. The real estate industry continues to try and convince their clients that the print media publications from the Christchurch Press, to the NZ Herald and from the Dominion Post to the Property Press are the best form of advertising flies in the face of this characterisation of Trade Me Property. Either the real estate industry genuinely believe online is the best form of advertising or they don’t - they should not speak with forked tongue!

I further find the reference to “loose control of those eggs” equally fascinating. These ‘eggs’ as Dave describes them are adverts for their clients listings, nothing more, nothing less. Adverts that are created under an agreement with those clients to act in their clients best interest to successfully sell their home. So how do they ever imagine that they are “loosing control” of these listings as adverts. The agent has a legal contract in the form of a listing agreement providing them surety to exclusively provide services to their client in the sale of their client's home which includes among other things advertising. So could they possibly think that Trade Me Property is taking control and endeavouring to null and void that agency agreement?

The video somehow portrays the website of Realestate.co.nz as some form of industry foundation using the phrase the “goose that lays the golden egg”. I am sure many in the real estate industry know full well that Realestate.co.nz is not a charitable foundation. It is a private company and its shares are held in part by individuals or companies who are not the subscribers or customers of the website and who one day may well decide to profit directly from the website in the form of profits or sale. So the phrase “the goose that lays the gold egg” may well be prophetic as it may turn out to be the nest egg for some of those shareholders one day to the exclusion of the likes of Dave Umbers and others of his colleagues across the country.

The final reference made to the benefit of placing those listings exclusively on Realestate.co.nz providing the industry with a “future” is fairly dramatic. Does the industry really fear their own viability as a result of an advertising platform changing its pricing model? Does the industry not believe that they deliver value to their clients beyond the choice of where to advertise a property for sale? I do. I believe that real estate agents deliver significant value, unique value in the aspects of market knowledge and intelligence, skills of facilitation, negotiation and that persistent ability to work tirelessly to deliver a positive outcome for their clients. Choosing where to place an advert and worrying about the cost of that advert at $149 pales into insignificance as compared to the overall service they collectively deliver 75,000 times a year.

Sure having an industry website is great. Many of their colleagues in other countries around the world wished they had an industry website, but those colleagues are not fearing their business future over a website platform and how much they charge. Advertising whether in the form of print media or online has always been a part of real estate. Whilst I was not involved in the industry 20 years ago but I am sure there were times that agents were up in arms about the annual increase in fees charged by the NZ Herald, The Christchurch Press, the Dom Post and Property Press. I am sure they felt blackmailed by the then media at the time. Equally I am sure in 20 years time the real estate industry will be up in arms about a media cost for reaching an audience. In that future it may not be Trade Me Property, it maybe Facebook or some future media platform, who knows?

The key thing to remember here is that buyers need to find out about property for sale. Agents need to represent their clients' properties to as wide an audience as possible. To reach that audience they have a professional duty of care to use all and any media that can deliver that audience. In today’s world that is online and for NZ online has to include Trade Me Property as well as Realestate.co.nz. My view would be never put all your eggs in one basket when it comes to advertising whatever the colour of the basket. Always provide clients with options of different advertising platforms.

Property musings on Facebook - 31 October

by Alistair Helm in

Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.

 

When Hollywood starts making movies about real estate - then you know the market has peaked!

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Our fixation of property as an investment is not healthy

by Alistair Helm in

The most popular story on the NZ Herald today is the "investor" who is selling his land in South Auckland for over $40m - having bought it in 1993 for $630,000.

By his own admissions he did not buy it as an investment - merely for his turf business.

The story is garnering huge readership and I would assume a lot of people will be associating this to the huge rises in property prices we have seen over the past few years and the extensive media coverage recently. Many may be wishing they had invested in land and equally they may be thinking about the next opportunity to buy land or property. 

It strikes me our fixation on property as the focus of investment is so narrow minded, and as many people too often comment a drain on the economic potential as it locks up investment dollars in unproductive assets.

There are a number of things that frustrate me about the coverage of this story.

The story is headlined as 'Investor sells land worth over $40m' - he states he was not an investor - just a business person making a business decision.

It is a single story of a single person who had $630,000 to spend on their business in 1993 - allowing for inflation that would be equivalent of over $1m today - no small sum. His options were many - he could have invested the money in many ways but he chose to invest it in growing his business. That part of the story seems to be overlooked as the focus is all about the price of land and the great investment return it delivers.

The inference of the story is that $630,000 into $40m is a stellar return - 40 times over 21 years - seems good. But hold on; if that sum had been invested in a safe and secure bank deposit it would be worth $2.3m today. So the $40m sale is actually a 20 times return over the average cost of capital rather than the simple view of a 40 times return that the original calculation shows.

A 20 times return or even a 40 times return is not stellar in the context of business investment. A 100 times return is stellar in business but unheard of in property or land investing. Investing in business is all about early stage investing - believing in the business. 

A great demonstration of the investment potential was coincidentally actually reported in the Herald today but does not capture the headlines. Sadly business stellar performance and investment just never makes the headlines.

Orion Healthcare is preparing for its IPO - launched in 1993 by its founder Ian McCrae the business is a stellar example of kiwi tech capability. It along with the likes of Xero and Vend are trailblazing global software solutions that are the best in the world in their respective marketplace and in the process creating billion dollar companies. Orion is likely to IPO at a valuation of $800m  - not  a bad return on the investment made by its early supporters and founding CEO who holds the majority of shares in the company.

This type of business is what we should see showcased  in the headlines to provide stimulus to the next generation of kiwi kids, entrepreneurs and investors rather than articles about perceived wealth in land. 

Property musings on Facebook - 24 October

by Alistair Helm in

Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.

 

1st home buyers should look to apartments

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Sale price premium cannot be claimed by advertising alone

by Alistair Helm in

Last week I challenged the claim made by the NZ Herald that the power of Herald Homes print advertising added an extra 20% to the sale price of property featured in Herald Homes. I wrote a detailed article "Can advertising generate extra sales price for property?" challenging their assertion which I firmly believed was misleading.

I wrote to the NZ Herald to request answers to questions regarding the research, in order to enable me to better understand the research they quote in support of their claim. This was their response I received :

“The research was carried out on our behalf by TNS Research, a well-respected global research provider.

TNS purchased a list of recently sold properties from CoreLogic – all properties were residential dwellings in the Auckland area (Franklin to Rodney), and had sold in the most recent 6 month period (1st August 2013 – to 31st January 2014) for over $1 million. This list contained fields for address, land area, dwelling area, number of bedrooms, CV, sale price, days on market, agency and agent.

This list was then supplied to the relevant agencies to populate with marketing data for each property. We asked for spend by media options (Herald, Property Press, TradeMe, etc.), open home visits, enquiries and numbers of auction bidders where relevant. This took a reasonable amount of time to collate but resulted in a completed list of 252 properties. Success measures were based on:
· Sale price to CV ratio
· Premium achieved (sale price minus cv)

This allowed TNS to look at similar properties (based on the data from CoreLogic) that included / didn’t include Herald Homes in their marketing mix (based on the additional agency data). Our advertising is based on the results of this analysis. We are absolutely confident in the methodology –as we have based our claims on actual sales and market data.”
— NZ Herald : Brad Glading, Head of Research & Insights : NZ M & E Ltd 9 October 2014

This response is certainly illuminating. I have no problem from a research perspective as the sample size of 252 properties is sufficiently robust and the methodology and factual basis is without question. The one issue I do have is that they chose to limit the sample to only those properties that sold for over $1m. This fact is not detailed in the supportive advertising when disclosing the research. It should be disclosed as in my mind it creates a bias in the advertising campaign as people would rightly believe the claim applied to any property sold with Herald Homes advertising.

As a point of reference and context. Using Barfoot & Thompson sales data for Auckland $1m + property sales represented just 1 in 8 of all property sales in the period from August 2013 to January 2014. Therefore this selective sample set of $1m + sales is actually a small fraction of the market. 

Far more important than the bias of the sample set is the belief by Herald Homes that the premium price achieved at sale is solely due to the advertising. The data they have analysed certainly shows a correlation between premium sale price and advertising BUT their assertion is that the advertising is causing the resultant premium sale price - this is not provable.

The NZ Herald have fallen into the classic trap of believing that "Correlation implies causation" where in fact the opposite is true. The fact is that a correlation between two variables does not necessarily imply that one causes the other.

The fact is there are just too many variables at work in the factors influencing the sale of a property for any one component to be isolated to be proven to be the cause of a sale price premium. I am certain that with the same set of data Trade Me could argue with confidence that advertising on Trade Me would result in a sale price premium or that auction sale process caused a premium or that real estate agents with blue logos caused a sale price premium.

On a more serious note I believe that there is a alternative hypothesis to explain the results of the research undertaken on behalf of the NZ Herald.

Alternative Hypothesis

 A key factor in the Auckland property market over the past few years especially of property  sales value over $1m is the prevalence of inner city renovated properties. These are properties which have achieved significant premiums over their respective CV due to the substantial investment in renovation of many hundreds of thousands of dollars. I detailed this situation in an article from earlier this year "Property statistics can be misleading".

I believe that such properties which have been renovated and then come onto the market attract a higher level of marketing investment which clearly will involve the Herald Homes together with other advertising in print and online. These properties also attain a higher margin over CV because effectively they are new homes and the CV relates to the former home on the site. These type of properties are more than likely to be skewing the results of the research and creating the correlation.

To prove my assertion I undertook a detailed piece of research of my own. I took the inner city suburb of Grey Lynn and with the assistance of a friendly agent accessed the CV and sale price for a total of 62 properties sold in the suburb between August 2013 and January 2014. Of this total, 46 properties had a sale price in excess of $1m. I then went through these properties one-by-one to identify which had been sold following a renovation. There were 16 properties which had been renovated.

Here is the resultant sale price premium for renovated and non renovated property compared to CV.

Renovated properties: 16 - average sale price over CV $403,125

Un-renovated properties: 30 - average sale price over CV $335,826

The margin is 20%! 

So I could quite legitimately say that the 20% premium claimed by the NZ Herald as attributed to the power of Herald Homes advertising is as likely to be the result (in the case of Grey Lynn) to be down to properties having undergone a renovation.

I judge that the NZ Herald has leapt to a interpretation of causation from their commissioned research simply by identifying a correlation potentially the result of significant renovations and therefore the advertising claim is without foundation and therefore fundamentally misleading.

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.

Property musings on Facebook - 17 October

by Alistair Helm in

Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.


Latest commentary on the property market

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Can advertising generate extra sales price for property?

by Alistair Helm in

  • If a TV company were to say to an company - if you buy this campaign you will see a 20% increase in sales - you would not believe it?
     
  • If a radio network were to say to an restauranteur - if you buy this campaign you will see a 20% increase in sales - you would not believe it?
     
  • If a real estate agent were to say to you as a seller - if you buy this campaign you will see a 20% increase in the selling price - you would not believe it?

So why would you believe it when the NZ Herald says - if you buy a campaign in the Herald Homes you will see a 20% increase in selling price?

Well that is exactly what the NZ Herald wants people to believe with the new advertising campaign it has started. 

To be fair and accurate they are not, as the headline says claiming that by using Herald Homes that you will see a 20% higher selling price. Although these banner ads you can read above suck you in with this ambitious claim!

What they are saying is that if you use Herald Homes then on average the premium of the sale price over the CV of the property will be 20% higher than for a property without the Herald Homes - as ever the small print tells the real story whilst we are seduced by the headline!

Herald_Homes_-_Sell_your_property_in_Auckland_for_more.jpg

So if I am correct in this assessment, this is the scenario they are claiming based on the much promoted Grey Lynn 'dump' - its CV was $690,000 and it sold for $1,075,000 at auction on Wednesday. So Herald Homes is claiming that if this property had not been in the Herald Home (which it was, as well as TVNZ, TV3, Stuff etc etc) then it would have sold for 20% less than $385,000 margin over CV - effectively without the Herald Homes a sale price of just $998,000. So the claim in this case is that the advertising in Herald Homes boosted the sale price by $77,000! - That is some claim. Clearly if this were to be believed then the investment of c. $6,000 a page would be money well spent!

The advertising material to support this ambitious claim references to a "TNS Research 2014" as the source of the claim. I have written to the NZ Herald with questions about the research and to seek to obtain a copy.

I cannot believe this claim as the fact is there is no such thing as a 'control' environment when it comes to property and any claim to state that this method of sale, or that agent, or this advertising will achieve a higher price is unprovable.

To be able to in any way even test this hypothesis you would have to analyse a sample group of properties in a similar area of the country across a variety of price points using different selling methods - some of these properties would be advertised with say Herald Homes and Trade Me / Realestate.co.nz, some just Herald Homes and some with no Herald Homes and just online.

I can see no possible way for any seller to be happy to participate in this type of 'research' - every seller wants maximum exposure and there is absolutely no way of isolating the impact of Herald Homes from other factors such as market demand or online premium advertising or any number of other factors.

I will wait with interest to see if the NZ Herald respond to my request and also to see if they continue with this advertising. I believe that this advertising proposal breaches the code of practice of the Advertising Standards Authority in regard to misleading and potentially deceptive advertising claims. 

Same data / different story

by Alistair Helm in ,

I remember hearing somewhere that it was bad news that sold newspapers - apparently not so when it comes to property!, or so you would imagine if you read the recent headline from the NZ Herald detailing the September results from Barfoot & Thompson.

The headline: "Auckland house prices rise to a record, as more million dollar homes sell".

Reading the article after I had reviewed the numbers from Barfoot & Thompson's report on their website got me thinking. How different the article and quite possibly the headline might have been if the reporter had reviewed the data rather than just the press release.

Here are the first 2 paragraphs of the article as published:

“Auckland house sales rose in September, snapping three previous months of decline, as more houses with a $1 million price tag pushed the average house price to a record, according to Barfoot & Thompson.

The number of sales rose to 959, from 909 in August, although below the 1,105 sold in September last year, Auckland’s biggest realtor said in a statement. The average sales price rose 3.8 percent to a record $738,876, and was 12 percent above last September’s average house price.”

No let me using the source data from Barfoot & Thompson September report and provide an alternative 2 paragraphs:

“Auckland houses sales continued to fall in September, the 8th consecutive months to see sales fall on a year-on-year comparison. Significantly sales of properties in the $400,000 to $600,000 price range saw falls of 22 percent.

The number of sales at 959 were 13 percent below September last year, Auckland’s largest realtor said in a statement. The median sales price continues to go sideways at $635,000, a trend that has been seen for 4 months now since a peak of $645,000 was reported in May.”

The facts are simply the facts. It is just that the NZ Herald decided to copy and paste the press release from Barfoot & Thompson and I chose to spend a bit of time looking at the key facts. 

When it comes to reporting on the property market and presenting facts there are some key points to bear in mind that are critical to helping make a more informed decision as to the article:

1. Sales data is only relevant when compared with prior year. Property sales are seasonal. There is no value in comparing one month with the prior month unless it is seasonally adjusted data. Here is the representation of Auckland sales by Barfoot & Thompson to demonstrate the state of sales:


2. Average sales price is not an accurate and trusted measure in property sales reporting. The range of property for sale especially to the high end of value can have a significant impact on the average price. Let me show you. Lets say that the September 2014 sales had been the same - 959 but instead of 161 sales over $1m there had been just 146, 15 less properties sold over $1m (that 146 sales is how many properties sold for over $1m last September) and then lets say that an extra 15 properties sold at say $700,000. This scenario would have seen an average price of $710,000 - that is $28,000 less than the actual all for the sake of 15 properties! - that is how misleading it is to quote average prices.

3. Median price or better yet the Stratified median price is the most respected and trusted method of tracking house prices. Here is the median price for Auckland properties sold by Barfoot & Thompson measured by median price which shows the levelling off.

4. Real estate companies have a vested interest in presenting favourable articles based on statistics. They want to be seen as selling more than other companies or reporting higher prices or indicating that it is a great time to buy or a great time to sell or that there is a shortage of listings or a massive selection of listings. All of which as you can judge are often conflicting situations, 

 

As a final thought, researching the quote that 'bad news sells newspapers' I came across this article from The Guardian ( a media source I trust) who in a 2007 article on just this subject made the observation "peoples' interest in news is much more intense when there is a perceived threat to their way of life". It got me thinking - of course rising house prices, especially at the level they have attained in Auckland are what might be thought of as a "perceived threat to their way of life" - so maybe in the case of property news good news is actually bad news and the team at the NZ Herald are the smartest guys in town!

Property musings on Facebook - 10 October

by Alistair Helm in

Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.

 

First signal of poor September sales

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Post by Properazzi.
Post by Properazzi.




Vendor Conditioning - how real is it and what does it mean?

by Alistair Helm in

I have been delighted by the response to the series of articles I wrote detailing the personal process of selling our house. I have now edited the individual articles into an e-book which is available to download for free, so hopefully people can read and share freely. It has been interesting to hear comments people have made to the articles. It is very interesting to me to hear these comments realise that a lot of people did not have a clear idea as to the many parts of the process.

Naturally not all comments have been enthusiastically supportive. This does not surprise me, and to be honest I am always glad to have challenging comments raised. The debate and interchange is a vital part of the exercise, I think it adds hugely to the overall value of articles as a validation process.

One particular commenter of the final article was forthright, he challenged me to the extent of believing I was gullible and should not have been so naive. He described a part of the process, which he referred to as vendor conditioning. The process whereby agents “manage” the vendor expectation so as to ensure that the agents objective of a sale are achieved irrespective of the outcome for the vendor. In effect fundamentally challenging the very principle that the agent is working for the best outcome of the vendor. I know it is subtle, but it is an important distinction.

He stated that in our case when our agent provided what I judged to be incredibly valuable insight into the prospective buyers, our agent was in reality manipulating the facts, he was, he proposed  choosing to be selective in the feedback he gave us - choosing to only share with us the buyer feedback that downplayed the value expectation and thereby kept from us the more aspirational feedback which might have indicated that our property was worth more than he as the agent had originally indicated.

The logic he put forward was to ensure that we set a lower reserve at the auction, so that firstly the property would sell ‘under the hammer’ and secondly that the sale price would be above this ‘conditioned’ expectation and therefore he, the agent would look to have over delivered. This is a very interesting comment and supposition. I can clearly see the potential for this to happen and in fact I can find no way of refuting it as a generalised rule. I can however categorically state that in our situation the original assessment we had made of the market value of our property baed on my knowledge and experience even before we engaged with the agent was very close to the final sale price we achieved. Further the final sale price was at a level that I would describe as “a very nice price”, as opposed to at one extreme “OK” and at the other extreme “highly delighted”.

So whilst I would defend my comments and defend our chosen agent and state that we were not the victims of vendor conditioning, I am left with a view that this is a real possibility. It therefore leads one to ask the question - how do you establish objectivity in the process of selling your house, and thereby avoid conditioning?

The simplest answer is to get a professional independent valuation of your property before you engage an agent. I personally think that too much of the focus of the engagement of an agent is based on the ‘appraisal’ of the property. That too often, the choice of agent is based on the agent who provides the highest appraisal. This is so wrong. The real danger in choosing the agent with the highest appraisal is that they might well be appraising a higher valuation simply to “win the listing”. The hard truth is that no matter what any agent thinks your house is worth you will only get for it on the day of sale what someone is prepared to pay for it. The agent is there certainly to maximise the price, however that skill is not related to their skills as an appraiser so the choice of agent should be the one who is the most consummate at negotiating, the best at marketing and the best at facilitating the buyers to ensure the property generates the maximum number of prospective buyers.