Online Property Valuation Models – how accurate are they?

by Alistair Helm in


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As might have been anticipated, my recent article providing a guide to the current portfolio of providers of online property valuations models triggered the inevitable question – "just how accurate are they?"

So I thought I would do some desk research. However before I unleash a barrage of criticism stating that there are heaps of examples where the Automated Valuation Models (AVM’s) are so wide of the mark to make them laughable, let me simply say this. There over 1.5 million AVM’s or potential AVM's for NZ properties – there will always be outliers and extremes. I do not have time nor patience to review thousands of properties, or even hundreds of properties. I chose to select just 12 properties.

The method I have used, is to track the latest auction results as published by the team at Interest.co.nz as the auction year started after Christmas. I simply took the first 12 I saw which comprised 8 properties in Auckland and 4 in Tauranga. So again I acknowledge that my sample is hardly representative nor truly random. It is made up of auction sales only, the sales are only for those 2 areas of the country and represented a very quiet period of the year.

With these 12 property sales results I went to each of the 5 providers:

I knew none of these providers had updated their valuations to take account of any of these actual 12 sales neither would the sale records have been picked up through local council sales or agent reporting so there was no bias of an AVM being influenced by these recent sales.

Another point to note is the analysis compared the sale price at auction to the mid-point of the price range of the AVM.

So here is the table of results. The colour code used is blue where the AVM equalled the sale price exactly, red signifies an AVM below the sale price with green where the AVM is above sale price. Finally, grey indicates that the provider had no AVM for the property.

As you can see, the visual skew towards red indicates that based on this sample set most AVM’s were below sale price.

The original version of this article I used an average variance measure, after receiving valuable feedback I have now used the calculation of Gross Median Error.

All providers achieved a gross median error of less than 10%, with Realestate.co.nz achieving less than 5% which is impressive. I would deduce that a factor in their accuracy, is they benefit from the very latest REINZ data each month of unconditional sales, whilst all other provides rely largely on settled sales which come through at least a month to 2 months later.

Another perspective I was keen to examine in respect of the accuracy of AVM's was the indicative range they provide to reflect the level of confidence. For each provider, for each property I assessed the range as a percentage of the midpoint price.

This analysis is very illuminating. The provider with the tightest range (in theory indicating confidence factor) is MyValocity, closely followed by Homes, both just under 10%. This effectively meaning that their AVM range is 5% below the midpoint to 5% above which I would judge as fairly acceptable given this is a computer based estimation with no detailed knowledge of the specifics of the property.

Of interest in this analysis is the very wide margin in the range from Trade Me Property at close on 30% with their tightest range being for a single property at just 19%. Similarly Realestate.co.nz seem to apply a standard c.21% to all AVM’s.


For completeness here are the raw numbers

 


How come the internet has not killed the market for real estate agents?

by Alistair Helm in ,


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This seems to me to be a commonly voiced question. Whether you read the local New Zealand concern voiced as part of a recent REINZ research reportthat questions the ‘you’re doomed’ view of tech” or listen to the renowned team at Freakonomics respond to the question ‘How has the internet not killed the market for Realtors yet?’ as part of their FREAK-quently Asked Questions

The fact is the internet has been around long enough now that doomsayers forecasting that real estate agents would go the way of travel agents and taxi drivers are clearly wrong. Here in NZ as well as many other countries, we have not seen massive, significant or even modest disruption of the role of real estate agents in the real estate process as a function of technology.

I recall the quote I used for many years in industry presentations as a wake-up call to agents to embrace technology rather than fear it:

Agents will not be replaced by technology, they will be replaced by agents with technology
— Peter Williams - CEO Deloitte Digital 2007

It has long been my view that technology has a lot to offer the real estate transaction process, but wholly replace the role of the agent. Forget it. It is not going to happen.

As to why, the simple answer is well wrapped up in this summation that speaks to the true role of an agent:

The transaction process for a residential property is for the majority of people a highly infrequent event. It’s a lengthy and complex process.
It’s a deeply emotional event.

It’s an event that commits people to significant financial liability and most importantly it lies at the very core of Maslow’s hierarchy of needs.

That is why people entering the process want and need the support of a real person, someone on hand, someone they can trust, someone who is proficient with the process and will be their guide, their confidant, their confessor and their advisor

Let me unpack this statement so as to provide clarity, as to why, when you look at the component parts, technology can improve and has improved efficiency and brought greater transparency to the whole process, but when seen as a whole, the process, particularly when it comes to selling a property is way-too-much to allow disintermediation through technology to completely replace the agent of the process.

It is important at this stage to clearly define the real estate process in the NZ context as a seller-side service, as is the case in similar markets like Australia and the UK. It is also fair to say that the buyer side has been significantly affected by technology - easier access to inventory and democratisation of property data both of which have empowered buyers.

As an aside the US is a very different market with both buyer-side and seller-side agent services which makes the transaction far more expensive and complex as it supports twice as many agents, as selling agents cannot advise buyers and visa versa. Added to which the US system still heavily relies on an archaic listing database structure – the less said about this the better!

Let me now share my thoughts on those key components of the process – both real and emotional and thereby better demonstrate the influence of technology as an enabler but not a disrupter.


Infrequent

It is not unheard of for people to live in the same house for decades, equally some people seem to move every few years. For me, I’ve moved 10 times in my adult life which averages out to just less than every 4 years. I understand the average is somewhere between 8 and 12 years. This infrequency leads to a lack of 'learned experience' for the majority of buyers and sellers. The fact is they seldom get to develop skills and experience into the process of selling a property which often leads to a sense of uncertainty and that nagging doubt “that something's changed since the last time we moved?”


Lengthy

For most people selling a property is inextricably linked to buying a property. The elapsed time for a completed move of house is generally measured in months rather than days or weeks. Often people start to consider moving 6 to 9 months before actually physically moving. This protracted process means that people often become distracted by everyday matters especially as the process builds up a head of steam as the critical decision-making date of putting a house on the market has a habit of creeping up on you. So just when you thought you had the time to manage everything yourself, you more than ever need someone to offload onto.


Complex

Buying and selling property is complex. It needs to be. Property rights are at the core of modern democracies. It is the land and the legal rights pertaining to owning land that underpins the property owing process and ensures that you alone own the land upon which the property sits, whether that be a clear freehold title, a more complex unit title, cross-lease or leasehold title, the appropriate correctly documented filings need to be executed correctly and legally. Certainly, digital documentation processes and potentially a blockchain structure will ensure greater surety and efficiency, but this will only be as an aside to the overall process. We are blessed in NZ with one of the most digitally developed system of land registry which means that searching titles and recording title changes is measured in minutes. Many countries suffer from fragmented and un-digitised systems that leads to what is termed “the closing” process commonly taking weeks.


Financial

Property has always been a very large financial transaction, more so these days where typical property prices are up to 10 times the average salary and often far more in the major cities. Such financial transactions are still largely underpinned by mortgages which obligate buyers to 20 years or more of repayments. Certainly, digitised systems and artificial intelligence has and will, ever more in the future, change the process of mortgage origination to the point when applying for a mortgage or changing a mortgage term will be as easy as a PayWave transaction.


Real person

Sure, we are being better served by bots and voice activated artificial intelligence when it comes to booking an Uber or checking on the delivery of a courier, but we are humans not robots and we crave the ability to look eye-to-eye with a person we empower and trust to represent us. Someone who has shown their credentials and who through recommendations and referrals we believe has our best interests at heart to see the process through to the end surmounting any obstacles that may appear on the way – that person is the local real estate agents we select. Someone who is part of the local community part of who we know, someone who will be there now and in the future.


On-hand

It is staggering how human-like the latest Artificial Intelligence human interface is in answering questions, another 5 years and we will be easily convinced we will be talking to a real person on a screen or even in a hologram. This will be great for shopping and informing our everyday lives but when it comes to property purchasing I suspect it will not be until we actually trust AI to transact with another AI, in a very distant future world where every action is AI driven; then we will see the gradual replacement of agents. Until then I think regardless of tech-savviness or age, people selling property want to look deep into the eyes of the local agent who sits in front of them and tells them how this process works and how they will be in good hands.

 


Trust

That indefinable quality that often tops people’s list of real values we seek in people we want to work with and be with. Real estate agents sadly often fail to reach even half way to the likes of doctors and engineers or police on trust ranking professions, but you have to ask yourself what erodes that trust in agents? Is it the experience of you or your friends, or is it a perception created through the media of the few bad-apples that certainly damage the reputation of the many thousands of agents that day-to-day support thousands of customers? Sure, if the industry can’t keep working to eradicate the bad-apples, then trust will continue to be eroded but would you trust an artificial intelligence at the end of a phone line or online interface, more than a real person?


Process

The process of property transaction often seems easy when viewed from the outside. Stick an advert online and in print, host an open home or two, and wait for people to make an offer. Shuttle back and forth between buyer and seller working towards a compromised price and bang. Couple of hours work for c.3% of the selling price. How hard can it be – surely a piece of software can bring the buyer and seller together?

Well the perception and reality could not be further from the truth.

Firstly any business offering the service of real estate for a fee requires to comply with the Real Estate Agents Act 2008 – all parties in the role need to be licensed which requires significant initial training to reach qualification and then on-going training. The property transaction process starts way before any property advert is posted anywhere and requires a deep understanding of legal obligations and background investigations on the property as an agent is acting as a representative of the seller with all the legal implications that can entail with personal and professional liability.

The process of identifying and facilitating the prospective buyers and guiding them through the process has professional obligations as well, and such matters are complex and demanding with the agent at all times seeking the best outcome for their client (the seller) whilst recognising the professional responsibility to the buyer.


Guide

An agent is a critical guide to the process helping all parties understand what happens and when. This requires experience and coordination. Certainly software systems have and will continue to manage and visualise the critical timeline and the path needed to be taken with appropriate notifications and critical-path planning , however as we all know diary alerts and notifications are simply that, notifications, if you don’t have someone overseeing them and acting upon them, they will get ignored or forgotten and the process of real estate transaction needs to be a well-choreographed process guided by a dedicated person with experience.


Confidant & Confessor

Emotions cannot be wholly removed from the real estate transaction and as such you need someone to share your deep concerns with, whether you set out with this intention or not. As the seller you have in your agent a professional who has an obligation of client confidentiality which allows them to help you to succeed in the sale whilst appreciating the possible emotional challenges that lie behind the reasons for the sale, many of which may be the last thing you need or ever would want potential buyers discovering. However agents cannot abdicate their professional responsibility to buyers, they have to truthfully, accurately and honestly represent all the facts pertaining to the property they are acting as agent for – any misrepresentation and they are personally liable.


Advisor

An agent is clearly an advisor in the property process and more than ever technology plays a large part in improving the analysis and representation of property data to better inform all parties, especially when it comes to initial listing price expectation and then on through the process. However, no algorithm, no matter how sophisticated could advise a seller on the options available at the time of say a tender submission when the unique circumstances and market conditions influenced day-to-day by impending and actual transactions of prospective buyers change a market by the actions of these self-same participants as ruled by their head and their heart. The fact is Artificial Intelligence and algorithms are powerful tools that are incredibly effective at crunching masses of data at scale – think of millions of property records and thousands of property sales to come up with automated valuation models, but when it comes down to a couple of properties and a handful of buyers in a local area, no algorithm will be able to advise a seller or buyer in a way that creates confidence and facilitates outcomes that get people to where they want to go with their lives and the houses they want to live in.


A smart professional real estate agent is a role that is made up of a multiplicity of individual roles. Technology can be a powerful enabler to better support many of these roles, but replace them all in one unified system to facilitate property transactions end-to-end? No way. The best agents need to embrace technology and let it be their differentiator.

No country anywhere in the world has yet experienced a radical or significant disintermediation. This is not because the market is not attractive for investors nor so opaque that innovators cannot dissect the roles and processes and seek to reinvent them. The core fact is that real estate is not a global market that has liquidity and substitutional homogeneity. Every real estate transaction happens in a hyper-local environment that involves a tiny subset of customers and every transaction is in some ways ephemeral - never to be repeated or modelled for future. At its heart and to use the language of tech start-ups 'real estate transactions don't scale as a process'. Real estate companies can and do scale, but that is not the same thing and maybe the subject of a future article.


The Real Estate Salesperson Course – some personal insight

by Alistair Helm in


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I have spent the past few months undertaking the real estate salesperson course. This course which leads to the ‘Salesperson - National Certificate in Real Estate Level 4’ and is the educational requirement under the Real Estate Agents Act (2008) for anyone who plans a career as a real estate salesperson.

Funny enough, I did attain just such a certificate to practice real estate back in 2005 but at that time let my license lapse, as I never really got started in the industry. So, I decided it was time to re-acquaint myself with the course and have the certificate as part of my commitment to the industry.

The first comment I would make, is that the difference between studying for the certificate in 2005 and today is akin to the difference between Jean Batten’s preparation to fly across the Tasman in 1936 and the preparation that nowadays takes a Boeing 777 across the same Tasman Sea. The outcome is the same, but the attention to detail and adherence to protocols and processes is vastly difference.

In 2005 I remember I rocked up to the Albany Tennis Centre at 9am one Monday morning to participate in a training course undertaken by Unitec along with a dozen other would-be future agents. For the next 2 weeks, I spent 4 hours each morning attending a series of lectures on the core parts of real estate, which largely comprised understanding the laws pertaining to land transfer, as well as some great home-truths of the industry colourfully shared by industry stalwarts. There was some course work and tests which required my time some of the afternoons, but largely the acid test for the certificate came at the end of the second week when I was required to sit in front of an invigilator and demonstrate that I was competent to correctly fill out a Sale & Purchase Agreement. Once able to prove such capability (which took about 20 minutes) I was issued with a real estate certificate and was on my way to practice real estate the very next day. Or so I thought, what actually happened was that I chose a career with Realestate.co.nz a couple of months later!

Let’s now compare that scenario with the reality of training to be a real estate salesperson today.

I chose to enrol with the Open Polytechnic, who I commend wholly as their online course (supported by excellent tutors who are readily available to help) is excellent. However rather than the previous experience of a 2 week semi-part time study, the current course has taken me an elapsed period of just under 6 months. Now, I chose not to pile into the course as a full time student. I recon I spent around 2 to 3 full days a week working through the course papers and undertaking assessments. The Open Polytechnic indicate that each of the 3 papers required for the course would expect to take around 170 hours of study each! So committing yourself full time, you would expect to spend 3 months doing the course.

The course is comprehensive, here are some of the statistics.

  • The course comprises 6 written assessments, 7 online multiple-choice assessments and a final in-person assessment that takes over 90 minutes roleplaying the process of documentation and negotiation of a sale.
     
  • All assessments allow 3 attempts, if you fail after the third go on any assessment, it is back to the start of the whole course again with a new fee payable, which is around $1,000.
     
  • The course work comprising 3 discrete papers is all online and delivered through an excellent application. The scale of the course work is pretty staggering with a total of 280,000 words equivalent to close to 800 A4 pages!
     
  • The written assessments I completed and submitted (and maybe I was a little verbose) totalled 31,000 words written on a total of 90 A4 pages.
     
  • The 7 online multiple choice assessments are timed at an hour in which you have to answer all the questions correctly (with the 3 goes).
     
  • The course work covers a staggering 30 Acts of Parliament, obviously involving the expected Real Estate Agents Act 2008 as well as Land Transfers Act 1952 and the Residential Tenancies Act 1986. However, would you have imagined the course would additionally cover aspects of the Human Rights Act 1993, the Building Act 2004, the Civil Union Act 2004 and the Secret Commissions Act 1910 to name just a few ?

The course naturally covers all the legal aspects of property transactions (as well as some degree of business transactions) in significant detail as well as the legal obligations, as well as focussing significantly on the Code of Conduct of the Real Estate Agents Act Professional Conduct and Client Care Rules 2012. The course material also covers as broad a syllabus as personal brand marketing, all aspects of property marketing, as well as appraisal procedures and the complete process from assessment to settlement.

I feel, having completed the course in a far better position to advise and support buyers and sellers in the process of property appraisal, marketing and transaction than I ever would have done back in 2005. This vastly different entry criteria to the industry is the result of the 2008 Act that set up the Real Estate Authority and improved the standards of procedure and process in the industry. An industry that sadly was all too often lambasted in the media for sloppy procedures and archetypal bad-apples that certainly reinforced the poor reputation of the industry.

As ever such changes do not solve issues overnight. The education threshold on entry to the industry is not retrospective, although on-going training is nowadays mandatory. Bad-apples continue to plague the industry, far less-often than before, and the implications for those that break the law or are found to have breached the code in terms of fines and disbarment are now more significant. However I have confidence that the new entrants to this industry – some 2,000 last year will demonstrate the best of capability and adherence to the laws governing this key process that involves many hundreds of kiwis everyday.

 


Asking prices and selling prices - a comparison that points to new metric

by Alistair Helm in


I read with interest a joint report by Realestate.co.nz and REINZ (published last week)  “New Zealand Property Report – asking & selling prices - a comparison”. The report states that based on analysis of property sales and property listings in the second half of last year – the median absolute difference between asking price and selling price was 2.67% nationally. That would mean that based on the most recent median sale price of $550,000 the median difference was just $15,000. Clearly indicating a very accurate estimate by agents of likely selling prices.

The report published this chart of asking price to sale price tracking the past 5 years.

I must confess for a couple of minutes I was somewhat confused, as I made the mistake of assuming that what this report had done was to track the monthly asking price as reported by Realestate.co.nz in their monthly NZ Property Report and the monthly REINZ median sale price. The chart for this set of data looks somewhat different as you can see.

The variance of national asking prices vs national sale prices is more like $100,000 as opposed to $15,000. This amounts to a 20% variance as opposed to the reports 2.67%. I then read a bit deeper into the report to understand why I had been confused and thereby explain the significant difference between these two seemingly similar data sets.

This new detailed joint report is based on the relationship between asking price and sales price where a price has been displayed when the property is listed for sale. So the data comprises just those listings where the property has been marketed with a price by the listing agent, thereby excluding all listings by auction, tender, or simply those for which no price is displayed.

Out of interest based on the current portfolio of all listings on the market at this time – the sample set in the report of properties where a price has been displayed when the property is listed for sale is by far the largest subset of properties on the market amounting to 61% of all listings. Some 16,877 from among the 27,643 properties on the market. This data is very helpfully provided on the Realestate.co.nz website under the Advanced Search on the Classic site – unfortunately another weakness of the proposed new website which has no such Advanced Search function.

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Being an analytical person, I began to wonder what this data point of median absolute difference between asking price and selling price was? – was it the amount of the variance of the median asking price to the median sales price for all the listings over that 6 month period? Or was it the median of all the variances between the asking price and selling of all the listings over that 6 month period?

I hope I have not confused you yet!

To hopefully help explain, here are a random set of fictitious data point to help explain my questioning:

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These 7 properties represent a fairly wide range of prices. The median asking price is $650,000 and the median sale price is $635,000 which relate to property #3. In choosing this fictitious group of 7 properties I have reflected sale prices that are both above and below the advertised price as I assume the listings that feature a price include both those with a price, as well as listings that feature the prefix of “offers over $xx / Buyer interest form $xx / Buyer enquiry over $xx”.

However as you will see the median absolute variance of this data set of 7 properties is not the ($15,000) from property #3 but is ($5,000) from property #4 – with positive and negative variances the median gravitates to a midpoint which in this case is close to zero especially as the extremes of variances are $70,000 below and $55,000 above asking price.

I therefore have to ask – is the use of median absolute variance appropriate?

An alternative data analysis could be to use the mean as opposed to the median. As detailed below the mean asking price to sales price for the same set of properties is $12,000 representing a 1.3% variance as opposed to the 0.9% of the median absolute variance.

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Aside from this question I have with the data point chosen for the analysis, I commend Realestate.co.nz and REINZ for this report. The takeaway is that where properties are marketed with a price; the price chosen at the recommendation of the listing agent is likely to be a very close approximation to the likely value of the property at the time of sale. This is valuable for buyers who often feel they are in the dark regarding prospective value of properties.

As a proposal for these two organisations I would like to recommend an extension of this one-off report. I feel it would be of significant value if Realestate.co.nz started to report this new metric of asking price for new listings that are marketed with a price. Tracking this by region by month as well as backdating data to 2007 would be really valuable extension to the NZ Property Report!


Making sense of online property valuation models

by Alistair Helm in


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Having cited the democratisation of property data as the most significant event to occur in the real estate industry over the past 3 years, I thought it would be a useful follow up, to provide some insight and perspective as to this new world of more accessible property data and by so doing provide more context as to these estimated valuations as compared to traditional valuation providers.

I do also propose in a follow up article to review each of these new providers and assess their relative strengths and weaknesses.

There are currently I judge five key players in the market offering online estimated valuations for NZ property. These are Homes, Trade Me Property, Realestate.co.nz, MyValocity and QV (a note, QV only provide a free estimated valuation model on their mobile app – their website still requires the purchase of an e-Valuer report at $49.95 per property).

All of these operations provide a free unlimited online automated valuation on pretty much all properties in NZ. Well actually not every property. The fact is all of these providers recognise that without sufficient proximate data from which to compute their algorithm they cannot attribute a reasonable estimate to every property, so not every property will have a valuation estimation. It is likely that the more remote the location, the more rural, the less frequent the number of local sales the less likely there will be for a estimated valuation.

Let me expand upon this as an insight as to how these Automated Valuation Models (AVM) work. Each of these companies leverage the now easily accessible massive computing power that only a few years ago was the reserve of major corporate and government agencies. The likes of Amazon Web Services, Google Cloud Platform and Microsoft Azure to name but a few, which offer massive computing capacity just when you need it – in this case allowing these local companies to rent a couple of hours of grunty computing power to run algorithms that analyse the impact of all recent local sale records for all properties. This is basically how the algorithm works. Each property record is assessed against recent sales of similar properties (similar by standard metrics of for example number of bedrooms, size of property being the two most important).

The key data point here is recent sales; the more recent the sale, then the more accurate the estimation. Naturally there is a lot more sophistication in each company’s algorithm than I have outlined here, including self-learning tools to assess the system’s accuracy by effectively going back and estimating a property sale before the actual sale is confirmed and then reviewing actual sale price against estimation.

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AVM’s tend to be displayed on these various platforms as a price range with a mid-point. This is the result of statistical convention rather than a true sense of a predictive range. In my view look at the mid-point of the range as an indication of the AVM rather than the upper price! A range can often be as broad as 15% or even 20% either side of the mid-point which at times makes them seem very inaccurate. The fact is, the computer algorithms compute a single figure together with a confidence factor which then drives the scale of this range.

That is the complex part of Automated Valuation Models (AVM). The key question though is, can you, and should you, trust these estimation valuation models in the marketplace as a guide to better inform you as to an indication as to the likely selling price of a property?

Before I go into that, it is really important to lay out the difference between a number of data points that you are likely to come across in terms of assessing the value of a property. I have detailed below the 5 valuation data points in descending order of accuracy.

The Selling Price – this is ultimate statement of the true value of a property. This is the price at which a willing seller accepted an offer from a willing buyer. This valuation is 100% accurate, but at the same time ephemeral, as it is a moment-in-time judgement and will never be repeated because circumstances with the property market at a hyperlocal level change all the time.

A Registered Valuation – this is the most accurate estimate of a property's value and that is why it is insisted upon by banks and lending institutions who are prepared to take on the risk against which they lend. Registered Valuations are undertaken by a professional valuer, a person who has undergone extensive training and education spanning many years. Such valuations, often cost many hundreds of dollars. Registered valuers use recent sales and local knowledge to provide a very detailed written assessment of what a property is worth in today’s market. There is also professional indemnity that lies behind the valuation report.

A Real Estate Appraisal – a licensed real estate professional will provide a client with an appraisal as to what a property would expect to fetch in today’s market. Under the guiding rules of the Real Estate Agents Act 2008, it is a requirement that a salesperson provide a client with such an appraisal before signing an agreement to list and market their property. Such appraisals need to identify a price or a range, ideally not exceeding 5%. Such an appraisal is computed using a comparative market assessment of what properties of similar size and features have sold for recently. Additionally an appraisal will look at the hyper-local market conditions of supply and demand which a local agent is uniquely able to assess.

An Automated Valuation Model – as outlined above this computer based model is undertaken by the leading five online providers and is based on raw data with no human intervention or local insight.

A Rateable Value – this is a valuation developed for local authorities and undertaken every 3 years in order to provide a benchmark upon which local rates can be assessed. The Rateable Value is judged to be the likely selling price at the time the assessment is made and therefore this estimation decays pretty quickly afterwards. Largely the model used by the providers of this service for the local authorities matches the computer based AVM.

As a prospective buyer or seller the question is, which of these data points should you look at, when and why? Here is my opinion.


What a property seller should do?

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If you are looking to sell a property it is very useful to keep an eye out for local sales results – many agents nowadays will provide such report at open homes, and of course Homes / Trade Me / Realestate / MyValocity can provide this data although not all provide email alerts of recent sales in your area (Homes does a great job of this). In addition, it does no harm to review the AVM estimate for your own property, it’s a valuable guide. Again Homes offers the ability for you to ‘own’ a property record and receive monthly emails of the latest valuation and market trends.

When you are ready to go to market with your property choose your licensed real estate salesperson and get them to provide an appraisal which will give you their valuation estimation which will be most likely based on selected comparable recent sales of properties that best match your property. Their appraisal report will identify these comparable properties thereby allowing you to discuss and debate the merits of your property versus others. This appraisal is the best indicative valuation you can get without investing in a registered valuation.

The estimated valuation in an appraisal will be either a single figure or a range and in this case best practice says that the range should be no more than 5% overall, which means between 2.5% above and below the mid-point. So for example a range of say from $535,000 to 560,000 would be acceptable.

The appraisal you receive may utilise a couple of well recognised models as well as comparable sales. These being net rate / replacement cost or capitalisation of income. I won’t dwell on these other methods here, aside than to say a professional real estate salesperson will used their skills and knowledge to arrive at an estimated valuation that is the best in the market.


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What a property buyer should do?

If you are looking to buy, I would recommend the same approach of keeping a watchful eye on local sales and see what properties, like the one you fancy buying are selling for. Certainly, review the online service providers to see what the properties that come on the market are valued at based on AVM’s. Trade Me is great at this, in providing a link from most listed properties to the AVM on their Property Insights section.

I would recommend that when you get closer to the decision-making process of buying you chat with the agent for the property you are interested in, and discuss with them the view they hold as to price range and how that may differ from the AVM online – they will be only too keen to share the reasons why they view that their price judgement is more reflective of the local market conditions. Listen closely as they are working every day in the market and their insight is critical.

If as a buyer you require finance on the property you choose, you will likely need a registered valuation as the bank or lending institution will insist upon it, however I would take that lead from the lender rather than rush into requesting a registered valuation before you are certain on the property purchase. Remember obtaining a valuation as part of the financial conditions of a conditional offer for a property is perfectly acceptable.

The one estimated valuation I have omitted to mention in this process is the Rateable Value. The role of the RV has now finally gone. It can finally be ignored and retired from the lexicon of property transactions – interestingly something I suggested back in 2013!

 


Overuse of drone images is not the answer in real estate marketing

by Alistair Helm in


Sometimes I am drawn to rant. Rant about something that in the context of real estate annoys me. Today it is the overuse of drone photography.

To my mind, just because a technology has become ubiquitous within the real estate marketing arsenal does not mean that it should usurp the core principle of real estate marketing.

Let me explain myself. I have over recent months noticed an ever more frequent use by real estate agents of a drone image as the No.1 image within a photo portfolio for a property. Here is a sample of just 7 properties among the most recent Auckland listings today, I think proves my point.

Such drone photos certainly have a place within the portfolio of images - just as pictures of the bathroom or garage and as importantly a floor plan, but placing them as the first images I think lacks a clear appreciation of the emotional connection that an agent needs to achieve with the prospective buyer as they scan their latest email alerts or favourite property search online.

Drone photos provide context, and context is key (especially as it supports the age-old adage of Location, Location, Location!) but context should be the support to the visual story that is a portfolio of images, not the lead. The lead image; that first image, the only image that appears in search results and email alerts has to powerfully tug at emotional heart strings. Let me demonstrate.

Below I've grabbed just 3 of the listings highlighted above - on the left, the current first image and on the right my choice of a 1st image that I judge would better present the property in search results and email alerts.

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Property price trends – a new analysis

by Alistair Helm in


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I recently examined property sales and listings data in order to measure the clearance rates in the property market as a means to better understand the signals within the market as to trending patterns. In the same vein, I have now turned my attention to property prices as measured in the monthly median sales price by REINZ. This data set has a 25 year history, providing a rich period for analysis.

The graph depicting the past quarter of a century is probably well known and understood by those who follow the market.

Over these 25 years, the median price has with the exception of a few pauses and a single period of decline, edged inexorably upward from the starting level of $105,500 in 1992 (in today’s dollars: $175,500) right up to $550,000 at the end of 2017. That represents a 421% increase over the period, allowing for inflation that is a 213% increase – a more than trebling in median sales prices in 25 years.

Examining this chart can leave one with the misleading impression that that prices over recent years have experienced exponential growth. The reason being that a $50,000 rise in 2017 represents a 10% increase – highly visible on the chart, the same 10% rise in 1992 would amount to just $10,000 barely imperceptible on this axis, creating this impression that recent rises are more significant than a decade or two ago.

I've looked for patterns or trends in the path of median price over this protracted period and judge that the 25 years can be split up into 5 distinct periods as I have outlined on the chart, periods ranging from just over 4 years to 6 years.

I have then separately charted each of these periods. For each distinct period I have deliberately created a Y axis that ranges from a minimum of 20% below the median price at the first month of the period; to a maximum range of 110% above the median price at the first month of the period. This has been undertaken so that each chart can be viewed comparatively with each other.

The interpretation I draw from this analysis of the 5 periods of the NZ property market over the past 25 years based on sale price is that we experience cycles, no great surprise! We've had 3 periods of rises ranging in duration from 50 months to 70 months. Each rise has been followed by a plateau period equally lasting from 62 to 70 months. Within the second plateau period from Nov '07 to Jan '13 was the only significant period of falling prices. This decline lasted 23 months and at the lowest point prices fell 8%.

What is equally striking is the comparison of the three periods of property price inflation - the early 90's and the most recent 59 months both attaining a level of just under 50%, compare that with the staggering 102% rise leading up to the GFC over a period of 70 months. Certainly by this analysis the most recent 5 years have seen strong price inflated but nothing of the extreme seen in the early period of the new century.

For me this analysis proved the value in visualising price movements in terms of relative indexing as I have done with paralleled Y axis in each of the 5 periods. This got me thinking as to how to best represent this indexing in a histogram of property price movements. A bit of experimentation and trial and error has produced this new chart below.

It is a binary chart where the criteria is relative 10 months performance against a base month. It seeks to highlight periods that have experience significant increases in property prices or periods where prices have stagnated or declined - picking out individual months.

By way of demonstration to show how the chart is developed, let me explain. So if as an example the median price in January 2002 is less than the average of the median price in the preceding 10 months then January 2002 is judged to be a month of weak sale price and a red bar is displayed. Similarly taking May 2015 if the median price in that month is greater than 5% above the average median price for the preceding 10 months then May 2015 is judged to a month of strong sales price and a blue bar is displayed. The decision surrounding the use of average rather than max or median; as well as the 10 month period as well as the 5% inflation criteria are purely experimental to deliver what I judge to be a valuable visual representation of the property price trends.

I rather like this representation as a visual cue as to the trend in the market highlighting periods of sustained growth, sustained weakness or variability between growth and weakness.

As to interpretation of this chart and the earlier charts as a guide to the future, I will leave that to you the reader as my role here is not to predict the path of property prices, merely to provide a lens through which to view and make your own judgement as you interpret the data.

 

 


Is Realestate.co.nz ready to launch their new site?

by Alistair Helm in


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It would appear that Realestate.co.nz is prepping us all for the switch over from the old ‘Classic’ site to their ‘New site’.

The odd thing is that they seem however a bit reluctant to throw the switch. This ‘New site’ was first beta tested back last winter; with a select few industry customers given a heads-up-view as early as May of last year. Talking to some customer at that time, their collective view was that the new site was not an improvement (some less flattering comments as well) and the tech team at Realestate.co.nz should go back and do some more work.

Close on 9 months later, it's my opinion that the new site continues to fail on a number of levels. I personally use Realestate.co.nz regularly as I have done over the years, not least because it continues to be the definitive source of licensed real estate listings. Although since defaulting the URL to the New site back in October, I continue to painfully click the link to the 'Classic' site.

So I felt it was time I sat down and objectively reviewed the New site and look to see how it stacks up against the Classic.

My views and comments here are designed to be objective (or at least objectively based). I bear no ill will as in-any-way a function of my prior role as the CEO of Realestate.co.nz (2006-2012) – I left over 5 years ago now. My views written here are based on my extensive experience in digital product management coupled with digital management experience in property portals for more than 12 years.

Let me start with the question of why. Why have Realestate.co.nz decided to create a new site?

I’ve identified what I see as 7 potential reasons:


1. It could be that the management team feel that after 7 years, it’s simply time for a change… fair call.
I can understand and empathise with this decision, after all in my tenure at Realestate.co.nz we went through 4 iterations within the first 6 years (original RealENZ: 2006 / First Realestate.co.nz site: late 2006 / New design site: 2009 / Current site: 2010)


2. It could be that the code base is creaking under a legacy of tech debt… fair call.
I can empathise with this scenario. For developers, legacy code becomes a nightmare as time marches on, one that more and more slows down new dev work and saps the enthusiasm of dev teams. Tech debt is the price you pay for digital products and their constant iteration. As Agile teams, you own it, but here I have to be honest, you avoid it until it becomes hyper-critical. A new platform can be a sanctuary to park the tech debt. I can't actually see if the new site is a new code base and/or new architecture, it certainly would be time for a change, I know that for sure. 


3. It could be that they want to optimise premium advertising.. good call.
The New site certainly has created a premium tier structure for listings within search results, one that offers added premium position for agents to sell to vendors as premium property advertising. This will certainly drive the bottom line. The screenshot below shows the comparatively larger premium listing in the search results as outlined in red on the new site. Larger listings in search results are a tried and trusted approach to premium advertising adopted by all classified portals globally. 


4. It could be that the site is becoming too slow and needs a new platform architecture …fair call
This would be logical and strategically valid reason. Speed is still the imperative for any online experience. Too slow a user experience, and your consumers are just one click away from your competitors. However this is an area where objective analysis can be undertaken to measure the improvement . I used a Chrome plug-in to test various pages on the site to compare the Classic site with the New site. Details below, the speeds are an average of 5 page loads each, undertaken at the same time on the same laptop device. Suffice to say that if the objective of the New site was speed – it is not looking good. As a benchmark Trade Me Property scores an average of 7,000 milliseconds for a search result and 2,500 for a listing page. 


5. It could be that they feel that they need a truly ‘responsive site’ to better represent the growing mobile user base… fair call.
The new site is definitely responsive with 3 break points in terms of size, effectively giving a phone / tablet / browser experience. This is better than the current site which has been offering a two break point responsive site for desktop and phone since 2010. Better but far from optimal.


6. It could be that they believe that the future competitive advantage for property portals lies a revised search experience … good call.
It does seem somewhat archaic in this day and age that to find the properties you want to search for you have to engage across both Trade Me and Realestate.co.nz utilise the hierarchical navigation structure of Region / District / Suburb. Compare that to the Australian sites, the US sites and the UK sites and they all deliver a simple Google-like search box on the home page which delivers a smart user interface to find the properties you want to see. This New site certainly delivers a search box front and centre.
However what it abjectly fails to deliver is a functional User Experience that has become industry standard with such a search boxes. It has neither auto-complete nor suggestive options to help the user.
As an example type in Avondale – sure Avondale is a suburb in Auckland with 66 listings but it also a suburb of Christchurch with 21 listings. The New site gives me all these listings with no clear delineation of the two suburbs or even an acknowledgement in the search results that the listings comprise both Auckland and Christchurch listings. Now compare that User Experience with the excellent Chinese language site of Hougarden. Type in Avondale on their home page (Chrome has auto-translate) search box and look - a clear message : 65 listings for Avondale properties in Auckland and 20 for Avondale in Christchurch.

Or try out the beta site of OneRoof which has really perfected the search box experience.

 

The ambition to migrate NZ'ers from the archaic hierarchy of search by Region/District/Suburb is a laudable initiative by the team at Realestate.co.nz and I applaud them, but it it does come with risk, which only compounds if the user interface is not trustworthy nor accurate.
If anyone in the management team had been around in 2009 they would have remembered the stuff-up that I can own up to. We built a new site back then with just such a core search box as the primary user interface. That 'new site" lasted barely a week, not solely for this reason – speed was a far bigger issue but we learnt the lesson back then as our users kept reminding up in a deluge of emails – "If it isn’t broken …. Don’t fix it!"


7. It could be that they wanted to deliver a truly world class map based search user experience … no, I don’t think so.
If this had been the case they would surely have done a better job as the New site is considerably worse than then old site. It has an even smaller and less visible icon to show the map based search, added to which, it does not work! Taking my example of Avondale again, 90 listings, across Auckland and Christchurch but somehow just 9 of these listings can be displayed on a map!

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I think I will stop now at these 7 possible reasons, all valid and all quite possible (save the final map based search). The bottom line in my view is that this New site is not a demonstrable step forward.

There is one aspect of the New site that I have failed to mention in this detailed review and that is the design. In my opinion the New site is not a good design. It is ugly. It has a terrible muted feel - using a poor colour palette of greys and light blues that make it hard to differentiate functional structure. Additionally it has a design that really only looks designed-for-purpose on a phone and this is where I come to what I believe is the core real reason for the New site. It is my view that the management team has been seeing how much traffic accesses the site from a mobile device (I would guess well over half of all web traffic) and decided that a fully responsive web site was needed. 

However this is where I would challenge their thinking because even at 50% of all web traffic accessing the site from a mobile device still means that 50% access from a desktop and the New site is horrible on a large desktop screen. There is no longer a large screen modal to view the photos which the Classic site does so well. The New site looks like a website designed for a phone as the priority and then scaled up to fit the desktop - if that is the case as I suspect, then that is where the negative reaction from user comes from - certainly the view of this user.

The thing that really surprises me is that in this headlong rush to answer the needs of phone access to the site, the team seem to have forgotten the great iPhone and Android apps that the company has. Sadly a long forgotten platform that gets no love or dev time. The Realestate.co.nz iPhone app was launched in 2010 - a clear 2 years ahead of a Trade Me dedicated property app, thereby stealing a massive march on the competition. The Android app followed 2 years later, but sadly save for some annual bug fixing bot of these apps have stagnated. 

If it was my decision. I would focus way more effort on these apps. Apps have the huge benefit that once installed they become a competitive land-grab that can exclude a competitor and unlike the web are not 'one-click away' from that competitor. Realestate.co.nz had that advantage for well over 3 years and squandered it.

As to a responsive site I would research the heck out of user experiences and then get a great designer to envisage a user interface to deliver a site that does one thing really well - display property listings and their all important photo portfolio clearly with visual impact; truly optimising the visual experience - make sure this delivers on all devices with no compromise. I would also look to peers and competitors for design cues especially regarding user experience design and not ignore the excellent design of Hougarden. I would match this to the best machine learning database to deliver a search box experience that can tell the difference between Avondale properties in Auckland and Christchurch as well as millions of other search strings. Oh, and by the way a great map based search would be valuable as nobody in NZ has yet delivered this for property search (well of course with the exception of Hougarden!). 

Realestate.co.nz has the advantage of the loyalty and support of their customers (real estate agents and companies) but if they continue to ignore their users that loyalty will wear thin especially as Homes is knocking on the door, as well as the newcomer of NZME with OneRoof and by no means are Trade Me Property relinquishing their audience leadership anytime soon.  


Homes – New Zealand’s answer to Zillow

by Alistair Helm in ,


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The NZ real estate industry witnessed a significant milestone just over 2 years ago when Homes.co.nz hit the market. At that time the launch was significant. Today, two years later the service remains significant, and it is my belief that it will become ever more significant in the years to come.

Here is why.

Homes did just one thing when it launched, and it did it well. That is the mark of a business with big ambitions. It, for the first time allowed anyone, anywhere to see historical property sales records and estimated valuations for any property in NZ …. for free!

Sure, it was initially only for the main cities and it was not a great website and there was no mobile app. But for those who crave this type of information, all of those things were of little consideration. They wanted facts. Facts that had for decades been hidden behind expensive price tags. Remember for a minute, that back then in 2015 if you wanted to get the last sale price for a single property you have to dole out $10 on the website / $2.95 on the app of QV. To get a collection of comparable local sales, twice that amount; and for an estimated valuation $50.

Homes very quickly built a sizeable audience and become the chatter of meetings between friends, colleagues and neighbours. Marketing dollars were not needed when you have a source of information that is like cat nip to anyone who owns a property or wants to own a property or is simply curious about what your landlord’s place is worth!

Homes leveraged this consumer appetite with smart PR stories about every imaginable property fact and took on a smart and approachable marketing head in Jeremy O’Hanlon who was savvy and accessible. The word of mouth grew as did the traffic.

A bit of diversity wouldn't do them any harm!

A bit of diversity wouldn't do them any harm!

Homes is, and continues to be a privately funded start-up and at launch recognised the need to have a seasoned entrepreneur to seek out the initial funding and lead the company, this was when John Holt came on board to support the original founders being Jamie Kruger and Michael Gibbs.

Fast forward two years and whilst I don’t know the ins and outs of the company, I do know from extensive conversations with customers of Homes (agents and users) they are doing well and are on a fast track for the coming years to become a significant force in the NZ real estate marketing arena.

So why do I hold this confident position?

Simply put. What I see in Homes is what I witnessed with Zillow in the US from their launch in 2006 right through to their position today – a 3,000+ employee company with a turnover north of NZ$1 billion and market cap of NZ$7.5 billion. Allowing for the relative population comparison that would provide a potential comparable valuation for Homes in excess of NZ100 million.

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Zillow launched with a simple website (back in 2006 don’t forget there was no apps store, so the web had to do). It provided a simple offering – historical sales data and valuation (Zestimate) for almost every property in the US for free – the first such offering.

The site instantly became sticky (first day topped 1 million page views) as people had an insatiable appetite to see what their house was worth. That audience quickly generated a significant advertising revenue. As so with Homes who smartly set up sponsorship arrangements with key advertisers prior to launch as well as regular ads.

For Zillow the relationship with agents was at first testy – loved by few and hated by many; but it was not long before the smarter agents started recognising that the ad units Zillow could sell next to properties records and Zestimates was a perfect place to pitch to prospective clients. For Homes they established the same service with free agent profiles and premium profile so agents could ‘brag’ of their sales success on individual property records.

With agents recognising the power of the Zillow audience it was not long before these agents started uploading active listings which instantly bore fruit with strong viewing figures as Zillow users started using the portal for property search. At the time, the market back in 2008 was not as well developed with pure property portals in the US. There was an industry site (ala Realestate.co.nz in the guise of Realtor.com which was not owned by the industry but a kind of de-facto industry site) so Zillow had competition, but sadly for the owners of Realtor.com traffic soon switched leading to Zillow fast becoming the most visited website for property even if it did not have a comprehensive source of listings.

However whilst agents wanted to upload listings, the issue for Zillow was the complexity of the listing process in the US – much like so much of things in the US it is simply best to say getting a source of listings is a nightmare with 900+ Multiple Listings Services each of which is unique and holds geographical monopolies that are political fiefdoms. Bottom line was that whilst agents started to love Zillow their broker business owners and these industry listing services were not supportive.

For Homes the issue was similar but different. Accessing listings in NZ is easy (in theory). There are 6 major franchise groups accounting for well over two thirds of all listings, who can in theory provide a data feed of all active listings at the click of a key so long as you have their support. These 6 major groups though are the shareholder owners of half of Realestate.co.nz and to date the support for listings uploaded to Homes is limited to Ray White together with some independent operators outside the major 6.

Demonstration of Homes listing in Auckland - almost all Ray White

Demonstration of Homes listing in Auckland - almost all Ray White

As far as Homes playing to the Zillow playbook, I would judge that they are, where Zillow was back in 2009. Which says they have a lot to do, but I would judge that they will probably start to accelerate to catch up pretty fast. Within two years I would see them being a credible and viable competitor to the key players of Realestate.co.nz and Trade Me and potentially the new entrant of OneRoof.

So, what can the Zillow playbook hold in store for Homes. In terms of property marketing there will come a whole suit of premium advertising products which agents will pitch to sellers as digital continues to grow in relevance in property marketing. In addition as a function of the owners flagging their own home on the site they will be able to actionsmart direct marketing to property owners and prospective vendors. In terms of agent advertising I think they are better developed than any other digital player in NZ today which includes Trade Me and Realestate.co.nz. On top of this then comes the ancillary business opportunities. Zillow created a mortgage origination marketplace, not something that really exists in NZ but certainly a deeper and richer relationship with key NZ banks and financial institutions could be mutually rewarding for Homes.

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A bit more lateral is the pivot from Homes adopting the Zillow playbook to adopting the Zoopla playbook. Zoopla in some ways the UK version of Zillow, has very successfully broadened its business from property marketing to price comparison services, originally around utility and finance services through the acquisition of uSwitch to recently pitching the acquisition of Go Compare a far broader and significantly larger player in the UK market for comparison services. The logic being that once you become a trusted source of information and services of the house as an asset, then you can leverage that to any financial transaction from or to-do-with the house, especially as the house is always the biggest financial asset anyone generally has.

So what if any are the roadblock which sit in Homes way?

Listings. If the real estate industry decided it was not going to support Homes and not syndicate their listings to them as a property portal then Homes will struggle. However I don't think it would be killer blow to Homes, if they can demonstrate to agents that their appeal to clients and customers is as good or better than the current portal players then the power of the agent against the force of the key real estate companies will be the real test.

I’m excited to see what happens over the next 2 years in the real estate marketing arena, there is a lot at stake and some well-established players with a lot to gain and a lot to lose.


So what's been happening over the past 3 years?

by Alistair Helm in ,


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I have been meaning to sit down and reflect what has happened in the NZ real estate market over the past years since I parked up Properazzi back at the end of 2013, and took on the role of Head of Product with Trade Me Property.

As would be expected, some significant changes, and some small changes. So here’s my thoughts.

 

Data

Back in 2013 the best property insights you could research as to historical sales prices and values without reaching for your credit card was at best the monthly aggregated median price by suburb or by region. At the end of 2014 a radical transformation occurred which must have sent shivers down the spines of QV and Core Logic, as first Homes.co.nz, and then shortly afterwards Trade Me Property liberated property sales records giving us for the first time the ability to search for sold prices on any property in the country.

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Homes got the early lead as Trade Me offered the data only on the mobile app, but the gap was quickly filled as Homes launched their app and Trade Me brought data to the website. Homes stepped ahead with an automated valuation model (AVM) for a majority of properties from launch with Trade Me matching with the launch of Property Insights in late 2016.

This is without doubt the game changing event of the past 3 years. Nothing comes close; and nothing has done more to assist buyers and sellers gaining a perspective as to an estimated valuation and historical sales records for all properties. It is appropriate to note that both Homes and Trade Me offer AVM’s only when there is sufficient comparable data. They have both employed sophisticated computer algorithms that churn through property data to create estimated values coupled with confidence factors which means that they are delivering around 60% of all AVM's within 10%. That is to say they can predict the likely sale price to within 10% in 6 out of 10 cases, which is pretty good as a global benchmark.

This democratisation of data has, as would have been expected, been a challenge for the real estate industry. However 2 years on, the majority of agents and agencies have recognised that a better-informed customer is an engaged customer; one they are happy to advise as to the local nuances of the market with the local up-to-date knowledge that can help steer them towards a much closer market appraisal than a faceless computer based AVM.

New Zealand has at last caught up with so many other countries that make available property sales information; thereby saving consumers money and alleviating uncertainty.

 

Digital marketing

This area has been on reflection slow to change (or stubborn to change?). The same two adversarial players of Realestate.co.nz and Trade Me Property are still the main players in town, but not for long I suspect. NZME are lining up their new portal OneRoof (more of this to come) and at the same time Homes, in mirroring the “Zillow playbook” has pivoted from property sales data and estimated valuation to now provide on-the-market listings of property for sale and rent from a growing number of agencies as they head to becoming a fully fledged property portal.

Whilst the Chinese language market is not large, it is relevant and in Auckland significant. Hougarden launched in 2011 has grown and grown to deliver a great digital service, especially as they severed their listings data-feed relationship with Realestate.co.nz back in 2015 and have now become a standalone portal.

In terms of user experience, I have to say that the key players have been slow to evolve, Realestate.co.nz has a new site which they seem nervous to commit to (more to follow on this matter) and I wouldn’t blame them. Trade Me Property has tweaked their website but their main focus has been on their mobile apps which continue to evolve streaking ahead of Realestate.co.nz which has hardly touched their apps in the past 5 years. I am clearly a party to this performance having had responsibility for all digital products at Trade Me over these year, whilst not a defense I would say it has been a learning experience as to the pace of product development at such a leading digital company (more to follow).

In the broader context of digital marketing, Facebook has made huge inroads, attracting the digitally savvy agents who seek to use the platform for marketing properties and more especially themselves as brands – many specialist marketing agencies have sprung up to assist such agents and clearly significant sums of money are now flowing into this area and likely to accelerate in the coming years.

Bottom line is that the past 3 years has not amounted to a radical step forward in digital marketing, more of small tweaks.

 

Industry structure

Little has changed in terms of industry structure. There are more licensed salespeople in the market today than there were 3 years ago. The latest data from REAA shows 12,714 salespeople in November, up from around 11,000 3 years ago. For these salespeople the market is a lot tougher, as back in 2013 annual sales totalled 80,000 and was on an upward path to peak at 95,000 property sales, today it is back down to 74,000 sales per year and heading down.

New players have entered the market mainly focused on trying to challenge with a fixed price model vs commission fees but the reality is that the top 5 real estate companies still represent close on two thirds of the market, a position little changed from 3 years ago.

One aspect of the industry of positive note is the stricter adherence to governance through the REAA and the complaint procedure process. The chart below tracks the annual total of complaints brought to the disciplinary tribunal (being the highest level of discipline within the structure of the REAA) – misconduct being the most serious finding, which for 2017 shows the lowest level since the organisation began. (The 2013 peak was probably more a function of the backlog workload throughput that the REAA took on in the early years and not so much a reflection of a single year).

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I guess the other elephant in the room that has focused the minds of the real estate industry over the past 3 years has been the investigation by the Commerce Commission into allegations of price fixing. This investigation was triggered back in 2013 by the actions and comments made by some companies in the industry in reaction to the decision by Trade Me Property to amend the pricing of listings. The outcome has been costly for the industry with close to $15m in fines levied against 13 regional and national real estate companies.


New Zealand slipping down the rankings of global property price inflation

by Alistair Helm in ,


This may well be the kind of news that we will all may be a little bit pleased to see. For once NZ and especially Auckland are not at the top of the global leaderboard by property price inflation. The Reserve Bank and government officials, I am sure will be somewhat heartened.

This ranking is provided by Knight Frank, one of the global leaders in real estate and their international research department are providers of valuable comparisons of residential and commercial property data around the world.


NZ ranked 27th out of 56 countries in 3rd quarter 2017 Global House price index

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Full report can be downloaded here

At a 5.2% year-on-year house price index inflation the Knight Frank team now assess NZ as heading downwards and place it at 27th place of the 56 countries ranked in the survey. Our neighbour Australia is considerably higher placed at 7th with an annual rate of house inflation of 10.2%.

Tracking the past 5 years in the chart below comparing NZ median price by quarter against Global House Index shows the extent to which the NZ market ran ahead of global index through the past 2 years. It also shows to what extent that the market has come off the boil in the past 9 months, although the final quarter of 2017 is showing a rise. Note: The NZ data in this chart represent the REINZ median price data showing a 4% year-on-year inflation in Q3 2017 vs Knight Frank's at 5.2%.


Auckland ranked 98th out of 150 global cities in 3rd quarter 2017 Knight Frank Global Residential Cities Index

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Full report can be downloaded here

At a 2.7% year-on-year house price index inflation the Knight Frank team now assess Auckland in the bottom third of global cities. Interestingly in the top 20 appears Wellington with a 10.7% annual inflation in 19th place. Our neighbouring cities in Australia see Melbourne at 10th place with a rate of 13.2% and Sydney in 26th place with 9.4%.

Tracking the past 5 years in the chart below comparing Auckland median quarterly price vs Global Index shows the significant inflation ahead of the global index of all 150 cities right up until Q1 2017, the significant decline in property price inflation since then demonstrates how much the Auckland property market has come off the boil in the past 9 months. The comparison of median price as reported by REINZ for the 3rd & 4th quarter year-on-year shows declines. Note: The NZ data in this chart represent the REINZ median price data showing a -0.3% year-on-year inflation in Q3 2017 vs Knight Frank's at 2.7%.


In addition to these two rankings tables Knight Frank has also released a comprehensive report on Global Cities. Auckland is featured as a case study in the report with the following excerpt from Rachel McElwee, Head of Research, Knight Frank New Zealand detailing the developments on the Wynard Quarter and the impact this has on the city.

Auckland: Blurring the lines

"Mixed-use development is reshaping Auckland’s central city, blurring the lines between work and living environments. The largest urban regeneration project currently underway in New Zealand, Wynyard Quarter, is transforming the former industrial port into a mix of residential, retail, leisure, hotel and office space. New types of purpose built spaces will be created such as the innovation hub, housing a campus-style precinct fostering creativity, technology and originality for start-up companies. A diverse range of tenants include the Auckland Theatre Company, financial firm ASB, architects Warren and Mahoney, the Hyatt Hotel Group, and multinational dairy co-operative Fonterra. When completed in 2030, Wynyard Quarter will house approximately 3,000 residents and 25,000 workers. The redevelopment covers 37 hectares of land and stretches three kilometres along the coast. Investment backing for the project came from off-shore, private investment, third sector and government sources. The waterfront could be further transformed if Auckland stages the next America’s Cup in four years’ time".

 


Newspapers have a future. It lies in a symbiotic relationship with real estate

by Alistair Helm in


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The excellent article “The future of newspapers” written by David Williams on Newsroom got me thinking about exactly that: Is there a future for newspapers here in NZ and globally?

I find it somewhat ironic that I ask this question given I spent many years at Realestate.co.nz confidently professing a belief that newspapers would be dead before the end of the decade, however I have to confess that I have somewhat changed my view over recent years.

I can recall so well the many presentations I made to crowded rooms of real estate agents up and down the country, confidently stating “Newspapers are dying.... people in their 20’s don’t read them, people in their 30’s barely read them; their readership is 40 and older and in time those readers will not be around!” Sure it was hyperbole to support my agenda – digital media is the future for real estate advertising. The data certainly supported my assertion and the declining readership trend over recent years has not been arrested. I even recall quoting the then editor of the Guardian who when unveiling new printing presses back in 2006 stated:

as we installed the new Man Roland presses, we knew they were likely to be the last we ever bought
— Alan Rusbridger

However, newspapers are not dead. They are dying; but at the same time evolving. In my view, their world is polarising. In the glitzy corner there is the world of click bait, of which our daily lives are awash – ever more dramatic headlines fighting for our limited attention spam but sadly racing ever faster to the bottom in terms of quality and ad cost, constantly fearing the competitive threat of Facebook. Sadly, so many of NZ’s metro newspapers have chosen this route.

In the opposing corner are the newspapers that still take the time to report and investigate rather than just regurgitate. Those I would place on a pedestal would include The Guardian, The New York Times, The Washington Post – major newspapers with significant backing. I am a big fan of the approach advocated by Gavin Ellis of the Trust structure. Whilst NZ doesn’t have the global scale opportunities to leverage as these major mastheads do, all is not lost. I am more confident that we can expect to continue to see local and regional (and potentially national newspapers) decades from now.

Newspapers have for the past 150 years relied on advertising, it's a symbiotic relationship at the core of their business model. One of the major groups of advertisers newspapers rely upon is the real estate industry. Pre-internet real estate agents relied on newspapers 100% - providing the right medium to the right audience at a cost-effective rate. Buyers valued it as a catalogue of what was on the market and equally sellers liked it as they felt it perfectly promoted their property. Property advertising in print is logical - strong images with clear attributes look great.

However the world has changed over the past decade or two and today newspapers are no longer the medium to showcase all properties on the market, certainly not for large national or regional papers. This is where I come to my point.

Local newspaper serving local communities can and do leverage local real estate advertising as much because properties advertised ‘feels’ right at home for the very reason that the content is hyperlocal. Sandwiched in with the local school events and sporting club news and all the other hyperlocal going’s on in communities real estate is complementary, comfortable, personal and local. Where I live in Devonport we are blessed by a great fortnightly publication the Flagstaff, it is the very epitome of this. If you want to know what is on the market in Devonport, it’s actually easier to flick through the latest edition of the Flagstaff than even to search on Trade Me or Realestate.co.nz. The same I am sure is as true and relevant for the Raglan Chronicle as for the Ruapehu Bulletin or the Te Awamutu Courier. There are 48 free local newspapers across the country which find a symbiotic relationship with local real estate companies, clients and agents.

As for the national or regional papers; in my view their approach has to be different, they can’t be the hyper local newspaper but on a larger scale. As clearly in the case of Auckland with the NZ Herald they can’t possibly offer to profile 9,000+ properties for sale across Auckland. What it can do though is deliver what is such a key part of real estate marketing – the serendipitous moment.

Advertising a property for sale is about reaching out to as many buyers in the market. These are the people who are deeply engaged on Trade Me and Realestate.co.nz. Buyers who set up email alerts and notifications and addictively check their mobile property apps. But not all actual buyers are so deeply engaged at the time, many don’t actually think of themselves as buyers; sure they certainly don’t represent the majority of people who buy property, but they could be buyers if as serendipity happens, they see a property that gets their heart racing, something that kick-starts them into action. This serendipitous moment doesn’t happen online. It happens in more traditional media of newspaper adverts, catching the eye of the reader as they disassemble the numerous Saturday supplements.

I put these thoughts forward as over the past year I have experienced first-hand the value of such real estate marketing – both hyperlocal newspapers and the serendipitous advertising in major metro papers, with significant success.

So, the truth is I have changed my tune over the years. Real estate marketing is about a broad marketing campaign, not simply online which is undoubtedly a critical base, but the complementary use of print media in newspapers as well.

It is just too important a process in the marketing a property not to consider the dual media, and for that reason we in the real estate industry need newspapers, so let’s hope they can survive and prosper.


Clearance rate tracks property market trends

by Alistair Helm in


The latest NZ Property Report from Realestate.co.nz was published at the end of last week. Its value lies in the key market indicators of inventory and listing numbers, providing a guide to the state of the property market and the trends we are likely to see in the coming months. It can be judged to be a forward-looking report as compared to historical sales data from REINZ. As an industry-owned site, Realestate.co.nz is without doubt the most comprehensive window onto the market with pretty much universal support from all agencies.

The January report covering the last month of 2017 was clear in its headline:

All-time low for new house listings across New Zealand while asking prices continue to climb despite increasing total stock numbers

I might argue, that far from being a surprising headline, the notion of new listings being at “all-time low” is something that has perplexed the market for the greater part of the past 9 years since the GFC.

The chart below shows the annual total of new listings for the past 11 years.

The most recent 12 months has seen a total of 118,647 new listings hit the market. The lowest annual total since data was first collected in 2007. Compared to a year ago, new listings are down 4.5%, with 5,500 less properties for buyers to choose from.

For Auckland though, the most recent 12 months has been a slightly bit brighter. A total of 40,870 new property listings have hit the market, up 8% as compared to last year, however nothing like the c. 60,000 new listings per year seen a decade ago. Auckland may well be finding a new balance between a buyers’ market and a sellers’ market as the NZ Property Report stated and the media promoted, but the City of Sails is far from awash with an abundance of listings.   There are currently at this time just under 9,000 residential properties of all types for sale across Auckland – this for a city of 1.377 million people. Pre-2008 GFC there were around 11,000 properties for sale, at the time, judged a fairly balanced market.

Whilst defining the state of the property market by the measures of inventory and new listings and comparing them to long term averages as Realestate.co.nz does is a fair method. I have though long been pondered how best to measure the state of the property market as a valuable guide to future trends. There is certainly no shortage of stats on the market – sales volumes, new listings, days on the market and inventory. Looking afresh over the past few weeks I have been pondering the notion of clearance rate as an indicator. The idea being that the state of the market can be reflected in the proportion of new listings that actually sell. Simply put, what percentage of properties that are listed are sold in a given time period? This is difficult to do in respect of specific properties, but in aggregate, for a specific time period we can look at the number of sales as a percentage of the number of listings; mashing together the REINZ sales data with the Realestate.co.nz listings data. These two data sets pretty much match apples-with-apples as they represent 100% of all licensed agent listings.

The chart below shows the clearance rate for total NZ residential listings from 2008 to date using a 12 month moving total comparison. To my way of looking at it, a fair representation of the activity in the property market over that period.

Peaking at 74% in the middle of 2016 before slipping back to 62% currently. At its worst, at the start of 2009 in the depth of the GFC just 34% of listings were selling.

For Auckland the picture is somewhat similar, although the most recent 2 years has seen a more significant decline; peaking at 76% at the end of 2015 and slumping to below 50% today – so effectively in Auckland today only half of all new listings are selling, a situation not seen since 2011. The market in Auckland has stalled.

However I feel this analysis of clearance rate is only half the story as everyone always rightly wants to know “how will this effect property prices” – far closer to most people’s real concern in many cases than the clearance rate.

So I decided to overlay property price movements on to this clearance rate data using REINZ median prices and their annual percentage change each month.

The result is the chart below for all NZ property spanning the past 11 years.

The split axis allows for the ability to align the data to better see the correlation – looks like a strong correlation. However would I be going too far to say there is a causation?

The logic is not new or rocket science. As the property market becomes more active with growing confidence of buyers and sellers enabled by encouraging support of banks, so the clearance rate rises, and prices start to rise reflective of demand pressure. The opposite being an easing in sales as finance dries up and confidence falls leading to falling clearance rates, flowing through into easing price pressure.

Undertaking the same analysis for Auckland not surprisingly mirrors this close correlation.

However what I found even more interesting is that if I adjusted the clearance rate and instead of using a 12 month moving total (which provides for the smooth even curves), I used a 3 month moving total.

This representation of the Auckland market certainly supports the hypothesis of the NZ Property Report that Auckland is now a buyers market. But this is not a sudden change which just happened at the end of the year. No; Auckland has been in a buyers market for most of the past 6 months and by December it has plummeted with close to just a third of all listings selling. The key question now is what is the new year likely to bring and how will this chart of clearance rate look after the summer?

 

 

 


Property Market Summary - Year end 2017

by Alistair Helm in


It is time for me to get back into the swing of writing articles on the status of the property market in NZ. I thought that since it’s over 3 years since the last such analysis I would start with a bit of an overview and what better time than the close of the calendar year.

 

2017 could best be described in my view as a bit of a ‘steady’ year – certainly not the most dynamic, but then again not a particularly ‘frothy nor exuberant’ year. In this regard the pressure of an overheated market witnessed in 2015 and 2016 seems to have somewhat abated – not I should stress that heat gone away, simply that the pressure valve has been reduced somewhat.

 

I like to starting any analysis with sales volumes, which in my view is the most important indicator. The volume of sales and to a lesser extent the pace of sales, reflect the confidence of property buyers and sellers to engage in the market. In the past year total residential sales look to be at the level of 74,500. A level almost identical to the recent years of 2012 and 2014, and fully 19% down on the recent heights of 2015 and 2016 which topped 90,400.

 

Residential property sales have been falling (month vs month prior year) since June of last year, a consecutive run of 18 months. At that time the 12-month total of sales amounted to 94,631, this has fallen to a level in November of 74,187. That is a fall of 22%. However by analysing the variance trend, it can be seen that rate of decline is slowing and by early next year the trend is likely to be reversed and sales will show year-on-year rises.

 

By then this decline will have represented the second longest consecutive run of falling sales since the turn of the century (the GFC period of May 2007 to Feb 2009 was 22 months of consecutive declines). That GFC period saw a significantly drop in property sales. Total annual sales dropped by close on 50% from 106,000 in the 12 months to May of 2007 to just 53,000 in the year to Feb 2009.

 

Whilst sales volumes are the best indicator of the state of the property market, there is an important denominator that needs to be considered when looking at time-series data, that is the number of actual residential dwellings in NZ over time.

When the Real Estate Institute started collecting monthly sales data from agents back in 1992 there were around 1.2 million dwellings, speed forward to today that number is now over 1.6 million, an additional 400,000 new dwellings. This denominator therefore needs to be laid as a measuring rod against any comparative sales figures. The chart below tracks the residential sales figures over that period as a % of the dwellings in the country at the time to show what proportion sold each month as moving annual total.

Over the past 24 years, the long term average rate is 5.8% of all residential dwellings are sold each year. At the very peak of the market back in the early years of this new century that rose to a peak of 8.5% in 2004, post GFC that figure slumped to just 3.5%, currently at this time we are sitting at around 4.5%.

I have in this analysis kept to the volume of sales as the single data point, this I believe is key in analysing the market as price does tend to follow transaction levels, something I will explore in a future article.

As to the ever present question "so what is the property market likely to do in 2018? - well the fact is forecasting the property market is not an exact science, to back me up in this assertion, I was heartened to hear the Managing Director of the IMF Christine Lagarde make just such a statement in regard to forecasting on a recent podcast from Freakonomics

forecasting is not a mathematics science and is more an art than (then) something else, although there is a huge effort on the part of our teams here to improve and refine. But there are totally unpredictable events and there are things that we simply do not understand, which are related to human nature, with behavior, as the Nobel jury has recently acknowledged by celebrating and acknowledging the contribution of behavioral economists
— Christine Lagarde : Managing Director, International Monetary Fund

If one of the leading bankers of the world recognises the uncertainty inherent in forecasting, who am I to try to second guess as to the future of the NZ property market!


Re-starting Properazzi

by Alistair Helm


It seems strange to look back through the archives of this site and see how much I wrote over a 2 year period between 2012 and 2014. This was when I was searching out my next move after my time leading the development of Realestate.co.nz as its first CEO. During those two years I spent sometime working with Simon Baker at Property Portal Watch, engaging in the wider global landscape of property portals, whilst at the same time commentating on the real estate industry and analysing the real estate market here in NZ on this blog.

 

I’ve not written an article here for close on 3 years, during which time I have been an employee of Trade Me Property leading the digital product team to enhance and grow the product portfolio to support buyers, sellers and agents in the quest to leverage digital technology.

 

That time in Trade Me has now ended, and I find myself free to write again about my passion - the property market and the real estate process. During my time at Trade Me I was not a straight-jacketed; but as an employee I recognised that I was inextricably linked to the brand and the company and it was not right to write the type of opinion pieces I had done in the past. I did though maintain my analytical role, authoring the monthly Property Price Index of sales and rental data published on the site, keeping my hand in to maintain my skills, knowledge and awareness of the property market.

 

Trade Me is an outstanding company, a great team of people with the most amazing culture and my time there was rewarding, challenging and fun. I will follow very closely the future of Trade Me and Trade Me Property especially in the coming years, just as I do with Realestate.co.nz, they are part of my history, something I am proud of.

 

So here I am gently stocking the embers, and taking tentative steps to my future and sharing them on Properazzi.

 

I left Trade Me because I didn’t feel I was doing my best work. I have not though left the real estate industry. I have been in this industry now for close to 12 years and have clearly found my niche. The future will see me stay within this industry and seek out my next career move. More of this to come.

 

So I'm back, with a slightly re-designed Properazzi. I expect to contribute articles that are informed, analytical and I hope interesting. Thanks for stopping by. Follow me on Twitter as this is my most active platform for the full picture of opinions and articles, equally feel free to sign up to my email newsletter (if you're not already an existing subscriber).