The NZ quarterly property review - Q1 2018

by Alistair Helm in ,


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The first quarter of 2018 is now behind us and with it the final month of the financial year. It is interesting as an aside that this last month of the financial year, through no direct result of any promotion or marketing by this industry towards the consumer, typically ends up being one of the biggest sales months of the year. Sure it's influenced by seasonal considerations but their is no denying the fact that incentives within the industry do bring more properties 'across the line' into March than would be the case without these incentives.

With that as a backdrop it is a good stage of the year to examine the state of the market from the available published data from both Realestate.co.nz and REINZ.

I always like to start any property market analysis with sales volumes as this for me is the most important driver. The Median Sales price whilst the headline of all property news articles is largely an outcome of the market, the result of the pressures of the market; but the number of transactions indicates the real health of the market.

Across the whole of the country, sales volumes have been weak now for what is close on 2 years. As the chart below shows, the market year-on-year variance dropped into negative territory nearly 2 years ago in July 2016. 

In the middle of last year after 12 months of declining sales we started to see the rate of decline ease off, and as we reached Christmas, year-on-year sales were pretty close to level with prior year. This was followed in January and February of this new year by very slight rises year-on-year, but then March seems to have hit us and we are back year-on-year to a 9% decline. This is why I made the comment earlier. I had expected that March would have been stronger than it was. For whilst comparing the same influence on the market last year, 9% decline after what has been very low sales volumes is surprising and has that feel of a 'late spring frost' arresting the early new spring growth.

Yet despite this 'snap of frost', it is my view that we are still likely to see sales volumes rising through 2018 to end well ahead of 2017. The most recent 12 month total sales volume to March was exactly 73,000 as reported by REINZ. This level of sales is almost identical to the low point of the last cycle in October 2014 before the upswing in sales that lasted for the next 18 month as sales rose to a 12 month moving total of 94,000.

When examining property sales over a long term perspective, a key influence that has to be factored into the analysis is the core underlying growth in the number of properties across the country. Twenty five years ago back in 1992 when REINZ started collecting and publishing real estate statistics there were just under 1.2 million properties across the country and in that year total sales amounted to 63,000. At the end of 2017 there were an estimated 1.63m properties, an increase of over 435,000 properties, up 36%, whilst total sales in the 2017 calendar year was 73,557, an increase of less than half that of the growth of number of properties. Property sales have gone through around 8 cycles in those 25 years reaching a all time high of 121,777 in April 2004 and an all time low of 53,463 in February 2009.

These highs and lows of the market have represented, a proportion of sales to actual dwellings with a high of 8.4% and a low of 3.5%. Across the past 25 years the average has been 5.7%. Over just the past 10 years the average has been around lower at 4.7% with the current level of the 12 months to March 2018 at 4.5%, certainly below the 10 year average and the longer term average. This further reinforces the view that the market is lower than would be expected.

Complementing the sales component of the market assessment, I am keen to examine the latest data of the clearance rate. This metric I introduced back in January when assessing the year-end data for 2017. It is the measure of sales as a % of listings applied to the latest 12 month moving total.

The picture for clearance rate which as I demonstrated back in January tends to track pretty consistently to median price movement over the years. Looking at the most recent 3 months the clearance rate appears to have arrested its decline and similarly the annual median price movement has stablised at around 5% allowing for the monthly volatility.

Taking all these data points into consideration it looks to me that we have reached the bottom of a cycle of property sales. Given the scale of the current residential dwellings at a level of 1.63m, a sales level of 70,000 is a low point and over a forthcoming period of what maybe 2 to 3 years we will likely see sales rise up again to an expected level of around 90,000. This assumption is predicated on the belief that a sufficient flow of new listings will come onto the market to facilitate this lift in sales, for without this, the latent demand will be unsatisfied and that has the potential to stall the market. 

 


So.. should I wait to list in the Spring?

by Alistair Helm in


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Sitting in a recent sales meeting of our local office the other day, the discussion came around to the pipeline of forthcoming listings. The one consistent comment emerging from around the table was the client desire to "wait for Spring". I have long heard this view that Spring is the best time to sell, but is it really?

Spring may well be the busiest time for new listings, but is such a cluttered and contested market the best time to grab and fight for attention?

This question and the data to support the opposite view is something I have written about in the past, but I thought it was about time to revisit this matter for the benefit of buyers, sellers and my new colleagues in this real estate industry.

From a statistical point of view the way to assess the seasonality of the property market is to create a picture of weighted average sales for each month, based on the historical sales by month. This is the approach I have taken in the past. However when updating my spreadsheet it did strike me that this approach was somewhat "rough & ready". After all, months have different number of days, especially when you allow for the major public holidays. So I factored this in to created a weighted average sales per day for each month and then expressed this in the chart below as to the variance that each month represents as compared to a "normal month".

This charts shows that the most active month of the year in terms of sales is March with January the least active. October is the month which could best be described as 'average'. The overall trend is that the most active sales period is February to May. The winter months through to September are quiet and then November comes storming back before December sees sales tail off. Nothing surprising in this I would have to say. As a note this data is total NZ sales from the full data set of Real Estate Institute statistics from 1992 to 2017.

In doing this statistical analysis, as very often happens I questioned the data to see if once you broke up the data for the full 25 years into separate 5 year periods, if this pattern has changed in any significant way?

This then is the same analysis but showing each of the five 5 year periods from 1992 to 2016.

This analysis I find very interesting (but maybe I am the only one!) - the key months for me are January, May, July and December as these to my mind are demonstrating a valid statistical trend.

January is very clearly becoming a much quieter month. In the most recent 5 year period (2012-216), a period in which sales have been buoyant, it has been close to 30% quieter than a typical average month. Why? Well it could be a factor of lifestyle and people really wanting to enjoy summer and not worry about buying or selling a property. However I believe the real estate industry has begun to see the need to manage their business better, and so establish campaigns that culminate with sales pre-Christmas or wait until the end of January and in so doing leave January clear for vacation. 

The month of May is very clearly becoming a more active month with a successive shift from being the 5th quietest month back in the early 90's to being the 3rd most active month of the year in most recent times. Why? I suspect that the earlier statement about how January has become less active has shifted the summer marketing campaign period well into May.

July has like May, become a more active month, however it is still the 3rd quietest month of the year.

Finally December has become less quiet, this coupled with a slight lessening of the activity in October would possibly indicate that the traditional Spring market activity is getting later and the lead up to Christmas is as active as the main month of November, especially as it lends itself a settlement and house move in the best of the summer days in the new year. 

 

Back to the matter of is Spring the best time to sell?

 

To really assess the best time to sell, you need to look at both the listings and sales by month to picture the seasonality. Statistics for listings only go back to 2007 via Realestate.co.nz and their NZ Property Report, so I have adapted the seasonality of sales chart to measure the past 11 years. So here are the charts based on this 11 year period for sales and listings.

These two charts have the same identical axis scale of -25% to +25% and the first thing that strikes you is how much more volatile listings are in terms of seasonality. There are only 5 months of the year when listings are more than average (Feb/Mar/Apr/Oct/Nov) with 7 below average, whereas sales are split 50/50. For sales there are only the two months of January and March when the variance to the average is greater than 10%, whereas for listings there are only 3 months when the variance is less than 10%.

A better way to view this mirroring of supply and demand is to line up the two sets of data on a single chart.

This is the chart that best shows the challenge of when to list a property for sale. If you hold by the adage of being a 'big fish in a small pond' then the best time to list is during the winter when listings drop off far more than sales drop off.

If you wanted to call a single month then December would be the winner. The differential between listings and sales is 16 percentage points, closely followed by May at 13 percentage points.

The worst month to list based on this analysis is October where the differential is 17 percentage points. This would therefore seem to completely quash the notion that the best time to sell is the Spring, certainly a deluge of new listings hit the market in the Spring but based on the latest 11 years of NZ sales data, September and October are actually quiet sals months with November being the single active month of the Spring.


The property portal space just got more competitive – welcome OneRoof

by Alistair Helm in ,


 
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Once there was one, then became two, a third lasted but a few years, another made some noises, but soon exited, all was quiet for many years before ethnic diversity spawned a new entrant and then with a rush first one and then another came to challenge the two primary incumbents.
— A historical perspective of NZ's property portals

Such is the history of the past 20 years of the digital real estate classified marketplace, those to which I refer can be seen in the chronology below:

1995 – RealEnz was the first property portal in NZ owned originally by REINZ (Real Estate Institute of NZ). It went through a few iterations and stumbles including a time around the turn of the century when the major 5 real estate companies launched a competitor in Realestate.co.nz which lasted 2 years

2005 – Trade Me launched a property classified portal, initially as a private selling (auctioning) platform it soon focused on advertising and sought out the support of the real estate industry. Ray White were the first to sign up with gradually the rest following until by 2009 all were on the platform

2005 – The REA Group from Australian launched Allrealestate.co.nz, leveraging the platform of the Australian Realestate.com.au site, the investment in NZ was significant with mainstream advertising and incentives for agents

2006 – RealEnz re-branded as Realestate.co.nz under a new ownership 50% REINZ and 50% Property Page NZ Limited (Harcourts, Barfoot & Thompson, Bayleys, Ray White, Harveys, LJ Hooker)

2008 – Allrealestate.co.nz closes operations. It all became unsustainable and their focus was on richer international markets

2009 – Sella.co.nz (owned by APN) expands to offer property classified

2011 – Hougarden launches as Chinese language property portal utilising initially a complete listings feed from Realestate.co.nz

2012 – Sella closes

2015 – Homes.co.nz launches initially as a property valuation portal but from 2017 as a listings portal with first supporters of the major brands being Ray White 

2018 – OneRoof (owned by NZME) launches

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For most of the past dozen years the digital classified property space has been dominated by the two largest incumbents – Realestate.co.nz and Trade Me Property. They have jostled for leadership, challenging from a position of listings supremacy in the case of Realestate.co.nz, and audience supremacy in the case of Trade Me Property.

Now there is a new contender that has been quietly offering a beta version of a site since December – OneRoof, backed by NZME. It is officially live and open for business and that is reason enough to share my thoughts, opinions and perspective on the new challenger.

Firstly the NZ industry has seen challengers come and go. Allrealestate backed by the Australian REA Group made a valiant effort to take on the market between 2005 and 2009 and made a good job of it. If it had not been for greater international opportunities it could well have succeeded as a long term player. The management knew the business, they held a good share of inventory and they had deep marketing pockets at a time when Realstate.co.nz did not, and Trade Me was of the view that marketing budgets were unecessary.

Equally Sella, albeit a clone of Trade Me made serious plays in 2009 and attracted some listings and certainly had an audience but the industry was not keen on a media owned competitor (at the time owned by APN which of course became NZME).

The landscape in 2018 is somewhat different though, and for this reason and the reasons I will explain below, I believe OneRoof could potentially be a very serious player in this market as early as this time next year.

 

User Experience

The OneRoof platforms of website and mobile apps are superb. They are in my judgement better than either Trade Me or Realestate.co.nz and given the turmoil that seems to be inflicting the latter in terms of its ‘new site’ this competitor puts their efforts to shame.

The platform is rich with a diversity of content, combining listings with property data, highly intuitive search functionality and excellent premium listing presentation. You could criticise them and say there is way too much data covering everything from travel times to crime data, local restaurants to property stats. For me it all works; and you can avail yourself of the richness or ignore it as it is far from intrusive.

From a technical standpoint it is interesting that they have chosen to create 2 browser platforms – a desktop and a mobile version. The more normal approach these days is a single fully responsive single browser experience. Having said that Trade Me still operates two browser platforms although they have been beta testing a fully responsive site for quite a while. The Realestate.co.nz new site is fully responsive (however the original Classic site was actually semi-responsive). There are inherent issues running two browser platforms, but equally fully responsive sites with multiple breakpoints are a technical challenge.

The apps on the mobile device for OneRoof are great based on my testing of the iOS app. The app is great with excellent map based search and great user interface design. The full rich diversity of content is as complete on the app as on the browser.

I have to say as a user OneRoof is the best digital platform on the market today.

 

Existing relationships

The huge advantage that OneRoof has over other challengers like Homes and even I have to say Trade Me is the relationship that NZME has with the real estate companies. These parties have been close for decades as the industry have been supportive advertisers in the NZ Herald and strong bonds exist across all the real estate companies. This is an Auckland skewed situation, but there would be few real estate companies around the country that at sometime or other don't advertise in the Herald or any of the other mastheads that the company operates (Bay of Plenty Times, Hawkes Bay Today, Rotorua Daily Post, Northern Advocate and many others across the North Island).

This trusted relationship will have been tested last year when NZME must have engaged the industry to announce their intention to launch OneRoof. That is what I assume. The fact that the site is live indicates that the industry were comfortable (I might judge this as being somewhere between grudging acceptance and supportive dependent upon which real estate company you talked to).

A big question for me is whether NZME will truly package up online and print advertising in easy bundles for agents to sell to vendors or if has been the case over the years the digital sales teams and print sales teams retain their own account books and end up confusing and forcing agents to choose?

All of that having been said the one worrying issue is that given the site was launched in beta in December and now is fully live in April the inventory support is very low. Of the major 5 real estate companies (who also remember own 50% of Realestate.co.nz) only Bayleys has jumped in 100% with listings. It is surprising and somewhat concerning that OneRoof has not secured any other major yet.

 

Media family

As mentioned the ability for bundled package selling of print & digital is a natural opportunity that NZME has created in this new platform, however the media family offers far more.

As the Australian counterparts have shown in both having media parents (Fairfax in the case of Domain) and News Limited (at least as majority owner of REA Group), there is much to be leveraged in the cross median marketing.

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Already the weekly NZ Herald property supplement has tipped its hat to OneRoof, I suspect it will not be long before the supplement is branded OneRoof, mirroring the Domain supplement in the Fairfax newspapers The Sydney Morning Herald and The Age. Equally the News Limited papers have used the branding style of Realestate.com.au in their property supplements.

The media machine that produces the newspapers around the country generates a vast amount of content around property which will be honey for the OneRoof audience adding to engagement.

I suspect it will not be long before OneRoof quietly smothers the fledgling specialist Commercial portal of True Commercial; it has been labouring away for many years but OneRoof Commercial makes more sense - a single platform for all types of real estate... all under OneRoof.

 

Maturity of digital media

There is a significant difference between a new competitor entering the market for real estate advertising now as compared to back in 2005 or 2009. The industry, and by that I mean the main 5 companies have a clearer view of how they operate today in the digital space. They have confidence in their industry owned portal of Realestate.co.nz. They judge that the relationship with Trade Me is balanced and they have not witnessed the total demise of print media.

Therefore in my mind, they are more likely to accept the establishment of OneRoof especially as Homes.co.nz is already an emerging competitor which has the full support in terms of listings from Ray White. This in someways demonstrates the split in the make up of the 5 major real estate companies when it comes to digital media. Ray White have always been the first mover as they were in 2005 supporting Trade Me, they equally supported Trade Me after the pricing fiasco in 2013 when Trade Me needed an ally. So they have with Homes, judging it better to take strategic advantage early on rather than follow the herd. Bayleys equally with a seasoned media person as General Manager in Greg Hornblow, can see the strategic advantage of an early agreement with OneRoof. As for Barfoot & Thompson and Harcourts they are the most staunch supporters and board members of Realestate.co.nz so it is no surprise that they are hedging their bets when it comes to Homes and OneRoof. As for LJ Hooker I don’t know, except to say they have not been known for strategic moves.

 

Burdens of incumbents

OneRoof is fortunate that the digital media landscape is somewhat fluid at this time, in this I am referencing the two main players.

Realestate.co.nz is the industry back-stop, supported by all real estate companies but feeling a little bit like it is floundering, given the current platform evolution on the web. Its strategic role as the price setter, has been a massive success. But I feel that this is now assumed by many in the industry to be what it was, not so much what it is or what it might become.

Trade Me Property is still fighting with a hand tied behind its back as a function of ‘long memories’ in the industry to the price changes back in 2013, this has limited the role it once held as a market leader in terms of business model and technical platform. Trade Me needs to establish a new platform urgently, especially in regard to the browser as the mobile apps are great but agents are not as engaged in the platform as they once were.

 

Market conditions

The property market especially in Auckland has clearly cooled and likely to remain cool for the next period, be that a year or more, with an expectation of sluggish growth as opposed to negative growth in both sales volumes and prices. For the rest of NZ the fact is what Auckland leads the rest follow (in time).

This property market is going to be very interesting for the property portals; for whilst a cooler market spells ‘longer time on market’ with a rising inventory (with the attendant rise in revenue for per-listing services) it may not depress overall advertising spend, quite the opposite as a cluttered market with high inventory will require smarter marketing to get properties to stand head-and-shoulders above the rest. The real estate industry is likely to go through a structural shift with a large number of agents exiting, but the overall size of the cake of advertising spend may not reduce markedly.

Given the requirements of smarter marketing a new entrant with smart premium advertising options matched to package bundling of print and digital could well reap huge rewards – OneRoof is so well placed.

 

The kill switch

With all this believe and positive encouragement for OneRoof you would think the champagne corks may be popping down at their Central Auckland head office, there remains though one nightmare reality. It is that the real estate industry holds the ignition keys – the listings.

As long as OneRoof fails to gain a decent foothold of listings inventory, the consumer will lose interest and repeated marketing attempts to re-attract them may reach a point beyond which the consumer may ignore the site completely. It is one thing for Trade Me Property to continue to succeed with 92% of listings it is a vastly different matter for a new site to offer at best 25% of listings. OneRoof needs to be very careful not to offside the major 5 real estate companies as without them they will struggle to get beyond 35% of the market even with Bayleys.


Real estate marketing – create a local presence through data

by Alistair Helm in


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I am embarking on my new career as a newly licensed real estate agent and looking to create a point of difference in my local market. This challenge is faced by literally thousands of new salespeople each year in NZ.

In 2017, there were 2,084 new license applications received by the licensing authority – the Real Estate Authority. That’s over two thousand aspiring new salespeople prepared to challenge themselves to make a career in real estate. The hard fact is that around half of all new salespeople fail to make it to their first anniversary. It is, as I have outlined before, a highly competitive industry; an industry where tenure and relationships hold huge value and getting started is a massive uphill challenge.

So set against this backdrop, I have been mapping out my own strategy as to how I am going to create a local presence in my own market – the Auckland suburb of Devonport. I want to share my approach, as for many years in my prior roles at both Realestate.co.nz and Trade Me I have advocated the importance of digital profiling as a means to build presence and to be found online; as prospective customers actively prospect for you and your skills; in stark contrast to the time-honoured tradition of real estate prospecting via the well-trodden path of door-knocking and cold calling.

My strategy is to position myself around knowledge and insight in the property market. Sounds familiar! As I am sure most real estate agents would propose that they can reference this positioning quoting the latest REINZ of QV stats on the property market from a national or regional perspective. However I am going for a more tightly defined hyper-local market of my suburb. I want to be recognised as a local expert able to talk confidently and write articulately about the trends of the hyper-local property market segmenting house sales separate from units sales and from townhouse and apartments sales.

In addition to sales stats and the median prices I am going to analyse and comment around the trends on the inventory and new listings in the suburb by property type.

This is a tall order and requires a lot of data analysis, but I judge that to establish this level knowledge and insight is critical to creating a highly differentiated credible and trustworthy platform in the minds of my prospective customers.

I’ve spent the last couple of weeks putting all this together into a single site that I have created. A specialised property website for Devonport and I am launching it now

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The site is a visually rich destination with a clear focus as a call-to-action of a monthly property report, added to which there are tracking charts that demonstrate the key trends by property type setting out the last 5 years.

I have combined this rich data and commentary with a visually engaging design which allows me to showcase the images of Devonport – all of which are my own photo collection, taken as I have walked the streets of Devonport over the past months. It’s great to combine the two passions of property analysis and commentary with a passion for photography.

At this time as I am still awaiting my full license to practice real estate so the "about" section merely profiles me, but once officially licensed I will be clear as to my role as a licensed real estate salesperson.

 


How vulnerable is the $100+bn property portal industry worldwide?

by Alistair Helm in ,


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In less than 25 years, a whole new industry has been created. Property Portals, these digital platforms that span the globe, aggregate property listings that serve as the primary advertising for the real estate industry. To the consumer this industry provides the most convenient method for searching properties for sale or rent, whether residential, commercial or industrial. Hundreds of millions of consumers every day.

In aggregate this industry of publicly traded and private companies approaches a collective market cap of something like $100+ billion across every corner of the globe.

The largest of the players would be Zillow with a market cap just nudging $10bn as it begins to eke out a decent (adjusted) EBIDTA which rose to 22% from just 2% the year prior on revenues of $1.1bn. This profitability however looks paltry as compared to the profit powerhouse of Rightmove in the UK which consistently exceeds 70% EBIDTA margins on revenues of $340m which is why it supports a market cap of $5bn.

The list goes on through the likes of the REA Group, ImmobilienScout24, VivaReal, Schibsted and many hundreds of others (including in NZ Trade Me and Realestate.co.nz). Suffice to say this business model of aggregating listings of real estate companies for consumer search supported by premium advertising and listings subscriptions makes for a very lucrative business, one that the incumbents will defend through constant innovation, as well as acquisition. However no industry is ever safe from disruption, especially digital platforms.

Whilst I don’t contend that the demise of these property portals is imminent, I do foresee a risk. A risk every bit as real as the global newspaper industry which became the victims of the property portal success as through the 90’s into the new century their real estate advertising goldmine, began to crumble and today has all but disappeared.

So what is this risk and where will it likely come from?

To understand the risk you need to simply look at the portals’ role. They are an aggregator of both sides of the market in which they operate. They aggregated advertised listings and they aggregate a consumer audience. Their global success has been the ‘winner takes all’ model as the aggregation of the largest audience (although in most countries there is a #1 and a #2 leaving the rest in their wake), audience advantage guarantees dominance in listings, so begets the audience.

But stop for a minute and reflect as to the future of search, after all this is what a property portal is, a search engine. The technology revolution for search is voice. The improvements of the past couple of years has been incredible and the next few years will take us forward beyond our current estimation. The reason why, is the accelerated adoption of ‘home’ devices. The Amazon Echo, The Google Home and the Apple HomePod. For a moment ignore the latter and concentrate on the first two. They are the global powerhouses of search and artificial intelligence, coupled with the global reach that would surpass the local audience of any property portal.

So imagine a future state. You’re on the couch and with your Google Home you ask “Hey Google – what properties might I like to see this weekend” – the screen of your choice (TV/ Tablet / Glasses) then starts to display homes for sale open this weekend.

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Let’s look at the mechanics of this scenario. Google Home is paired to your Google account so it knows so much about you – where you live, where you work, where the kids go to school, how far you drive on weekday and weekends, where your relative lives and your friends. Google knows what your style preferences are and what you have bought in the past few years to renovate or decorate your home, it also knows details of your finances and likely as not your mortgage.

So when you ask Google to show you what properties you would want to see this weekend, you don’t need Zillow / Rightmove / REA as intermediaries or their ‘simple’ search filters – location / beds / price.

Google has the listings inventory of every real estate company in every country, they have collated it for years in search logs. They have deep attribute knowledge of every house that has been advertised for over 15 years at least; they also every house’s estimated valuation. It knows the level of your interest in types of houses and more important the best match of you to your future house. So Google will deliver a portfolio that is personalised to a very fine degree for your review. However it will never stop learning leveraging its vast AI capability to do this. Every comment you make when you see a property in this portfolio will be a key signal to adapt the portfolio to better meet your needs by style, condition, location and attributes. Every comment is also a signal which helps other Google customers who benefits from your comments. Should a new property hit the market via the local agency that is the perfect match, it will add this to the morning update it provides before you leave the house in the morning, and schedule a catch up with the local agent optimising you and your partners diaries.

This capability is real and achievable not just by Google but also by Amazon as they have a significant advantage in consumer engagement in a retail sense and richer installed base of Echos. Already more than 1 in 10 US homes has a voice activated home device and that number will only accelerate this year.

What is the goldmine for these two behemoths?   Well Amazon for one, has made that clear just this week – they are after the mortgage market. Real estate is at its heart actually just a vehicle for the far more lucrative finance industry as the largest consumer asset base globally. As for Google, well as an advertising company I think they can come up with ways to monetise the connection between the agent and the buyer that will boost Google’s stock by a healthy $100bn or more!

How do property portals defend against this future threat?

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The smart ones recognise it and are heading down ancillary market routes. Zillow has been after mortgage origination for years, they have recently tested the iBuyer market, but I think the larger bet which has been on their radar for a number of years signalled by their Premier Agent platform is to become Zillow Realty as a broker of scale supporting hundreds of thousands of agents with an infrastructure to allow them to be truly independent contractors with no franchise aside from the Zillow brand. Interestingly Zoopla in the UK has already started earning more revenue from their uSwitch business than the portal space, they can see that the business model of a property portal may just have been an opportunistic industry that is surpassed by the next tech revolution.

Interestingly for those that have the memory of the early internet period there will be a familiar ring to the word portal, after all there was a time in the late 90’s when the river of gold of the early web day flowed from everywhere to Yahoo. Every pre-dot com start up gave up huge equity and most of their revenue to Yahoo to be the access point for their category of product or service as everything for the consumer started at Yahoo – how that once invincible portal has deflated over the past 20 years to a shadow of its former self, valued in ’98 at over $110bn and recently selling to Verizon for $4.5bn. An object lesson for today’s property portals perhaps?


The path to becoming a real estate salesperson

by Alistair Helm in


I’m taking a new direction in my career. I’ve decided to stay in the real estate industry; with over 12 years of experience I feel I hold a deep knowledge and experience that I can apply to the operational side of the industry.

So I am about to embark on the first steps to becoming a licensed real estate salesperson in my local market of Devonport, Auckland. I wanted to share the process so as to provide insight and potentially advice to others proposing to follow this path and to provide a wider audience with some insight as to the real estate industry and the operational processes within it.

I alluded to this new direction in my career a few weeks ago as I wrote a personal perspective on the real estate salespersons course which I have now completed. Now with my NZQA National Certificate in Real Estate (Salesperson) (level 4) in hand I am applying for my license to practice real estate. This needs to go through the Real Estate Authority and all the appropriate checks as to my suitability to hold a license as well as a public notification.

My focus will be residential real estate which has been my main focus whilst working through my roles at Realestate.co.nz and Trade Me as well as my prior roles in consumer marketing.

A key decision I have need to make was the choice of company to work for. My local suburb is well served by real estate companies of which there are 5 offices all within a local block, they are second only in number to cafes in Devonport.

According to their collective websites these 5 offices would appear to have 53 salespeople all competing for an annual sales of around 220 properties. It’s a competitive market! In just the past 6 months there have actually been 65 salespeople who have had their name on at least one listing, the reason being that salespeople and real estate companies outside of the suburb have had listings -it’s that competitive!

Having made the point that this is a competitive market, it will come as no surprise that of these 65 salespeople just 11 represented half of all listings, this is the Pareto principle of real estate – not 80/20 but 50/17.

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I have decided to work with Bayleys, whilst not the largest operator in my local market I felt that the brand works well with my personal brand and the scale of their operation on the North Shore and their market aspirations fit well with mine. The other larger operations in the local area being Barfoot & Thompson and Harcourts equally have strong brand presence, however, having examined the positioning of the key top performing salespeople I saw a better opportunity with Bayleys.

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As anyone with an understanding of the business model of real estate here in NZ and many other countries, the decision of who to work with as a company has few parallels with joining a company as an employee. I will be a self-employed contractor and the act of signing a contract to work with a real estate firm does nothing to benefit my bank balance, it merely ensures that I understand and agree to operate under certain policies and procedures. The rest is up to me, for in that regard I am the brand. I need to build my own presence; to prove that I can undertake the work required in a diligent and professional manner and gain the trust of my future clients whilst my fellow local salespeople challenge me with their years of experience and deep local connections, seeking to in many ways undermine me and my ambition. It is a competitive environment and I hold no allusions!

I propose over the coming weeks and months to share some observations on the role, the strategy and hopefully the success in my new career.


The battle for listings between Trade Me and Realestate.co.nz

by Alistair Helm in


A quiet celebration may well have been heard in the Trade Me office in Wellington earlier this week. Such an event will come as a welcome reprise, for when it comes to the Property division of the company, the last 5 years have not been an easy ride; I should know, as I spent the past 3 years working as part of the team to build out a comprehensive platform of tools for Trade Me members and real estate agents.

The celebration would have been for a milestone in the comparative inventory of properties for sale. As of Monday night the number of active listings of properties for sale (excluding bare land and building sections) advertised on Trade Me totalled 28,883, whilst for their competitor Realestate.co.nz it was 28,876 – a small margin of just 7 listings, but for Trade Me a major milestone. For the first time since late 2013, Trade Me has reasserted its mantle of leadership for the inventory of property for sale.

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The past decade in which digital advertising of property-for-sale has really become established as a critical marketing platform, has seen a somewhat chequered performance by Trade Me; but by no means a smooth road for Realestate.co.nz (I was CEO of Realestate.co.nz from 2006 to 2012).

The initial period up until mid 2010 was the most challenging time for Trade Me. Their initial launch in 2005 was not greeted warmly by the majority of the real estate companies with lacklustre support in the earlier years with the foundational move to get Ray White as an early strategic customer; this lead to key regional operators like Tommy’s and Leaders coming on board, as well as medium sized operators such as Professionals and First National before seeing one-by-one the majors of Bayleys, Barfoot & Thompson and then finally Harcourts bowing to the pressure generated by their agents to list on Trade Me. By 2010 the writing was on the wall that Trade Me was accelerating towards 100% inventory of all property for sale.

Between 2010 and the end of 2013 things could not have looked rosier for Trade Me. That period did see a significant tightening of the overall market, leading to a significant decline in overall listings, however given the fact that Trade Me's business model was a monthly subscription irrespective of listings, the money was rolling in as all offices around the country signed up to Trade Me. For Realestate.co.nz this was not an easy time, as given the unparalleled awareness of the Trade Me brand and its massive audience advantage, fighting for relevance was tough and despite the significantly cheaper subscription offering, offices were wavering on their commitment to this industry-owned site.

All that changed in September 2013 when as anyone with any knowledge of the history of this industry will tell you, Trade Me made a mistake. A mistake that has ended up costing them dearly and creating deep divisions within the industry. It was (if you don’t know) a price change for agents and agencies moving from a subscription to a pay per listing model. The consequence of this mistake was a much publicised boycott by agencies of Trade Me listings which saw a listings' leadership over Realestate.co.nz of 27% in mid 2012 slip to a deficit of 18% by the end of 2014 with overall leadership in inventory conceded in February 2014.

 

Apples with Apples

The figures I have used in this analysis, being the number of listings of property-for-sale, does have one glaring issue which lives under the classic phrase of “comparing apples with apples”. The Trade Me total inventory includes private-for-sale listings and of course Realestate.co.nz being an industry-owned site does not list private sellers . Not wishing to rain on their parade, the sad news is that when an adjustment is made to remove private-for-sale listings from the Trade Me inventory the slim advantage disappears and Realestate.co.nz retains leadership of the market of agent listings of property for sale.

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Thanks to Core Logic I have been able to estimate the extent of private listings from the total Trade Me listings inventory (an estimate based on proportion of private settled sales to total settled sales as a surrogate at least). This revised picture shows that Trade Me still lags Realestate.co.nz for leadership in listings, the margin represents some 2,500 listings with Realestate.co.nz having 9% more agent listings than Trade Me.

 

Regional picture

As ever with real estate there is never a single market, there are multiple markets on a local basis and so it is when it comes to inventory.

Analysing the regional inventory at this time shows that Trade Me can take comfort from the success they have had in the Auckland market, where as of today they hold a leadership in inventory of 3% with 10,277 properties for sale in a market. Adjusting for private-for-sale listings (which are low in this region) means that Trade Me has practically 99% of all the agent listings across Auckland.

In contrast looking to those markets where the 2014 boycott was strongest. Trade Me continues to lag significantly behind, specifically in the Manawatu / Wanganui region as well as the Hawkes Bay. Trade Me in these regions have between 60% and 70% of all agent listings.

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Technology empowered real estate solutions - the low price operators

by Alistair Helm in ,


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My recent article questioning (and answering) why real estate agents had not been killed off, as the internet has disinter-mediated so many other businesses; was published on the NBR website and generated a number of interesting comments. Amongst the more predictable with a focus on private sales vs agents, this comment grabbed my attention:

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The article I wrote, specifically focused on the role of the agent, and how this component of the real estate process continues to be successful, and in my judgement will be so in the foreseeable future. There will be challengers within this industry. In fact there have been challengers in the past, and so I thought it worth examining some of these technology empowered aspiring challengers, so as to more fully answer this comment, and thereby provide a broader picture of the new more digitally focused real estate landscape internationally.

Researching many operations across the main markets of the UK, US and Australia / New Zealand, has highlighted what I think are three key categories of challengers to the (traditional) real estate process. These are what I call 1. The low price operators / 2. The true innovators / 3. The opportunists

Given the number of models to examine, I propose to separate this analysis into 3 separate articles. I'll start here with the first being the low price operators.

Low Price Operators

The commenter in the NBR, cited two UK based real estate operations - Yopa and Purple Bricks. These are but two of what are many operators in the UK market offering an online focused / fixed fee solution. Most charge around £800 for what they claim is a simple, and far more efficient model than traditional estate agents. Take your pick.

 The UK top 10 online estate agents as reviewed by The House Shop - click to read full article

The UK top 10 online estate agents as reviewed by The House Shop - click to read full article

The key thing as ever in examining overseas models is context. The UK real estate market is very different to both the New Zealand and Australian. Firstly there is no equivalent of the Real Estate Authority legislating and overseeing the licensing of agents. More significantly though is the fact that the UK industry is what I judge to be 'low touch' service offering; meaning that as a vendor you engage a local real estate office to market your property (rather than a specific agent). They advertise the property online on the leading portals and handle enquiries and schedule viewing, but largely don't physically leave their office, as you the vendor, will host the interested buyer. The UK process is by comparison to NZ highly protracted (at least in England and Wales - Scotland is very different) in that an offer to buy is not legally binding until the settlement day and as a consequence often up to a third of all "sales" never settle and fall over in the final days and weeks leading up to settlement.

For this 'low touch' service real estate offices typically charge from 1% to 1.5% of the sale price and agents are largely employees of offices. For this reason the online service of the likes of Purple Bricks, emoov, easy property and Yopa are not that far removed from the traditional model. Instead of calling in at a local office, you sign up online and the service provider advertises the property and receives the enquiries and schedules with you the viewings. All this for around eight hundred pounds, compared to an estate agent charging say 1.5% of the average sale price of £225,000 amounting to just over £3,000.

The thing is, most of these operations have been around a while - especially emoov and easy property. It was not until Purple Bricks started to talk about a stock market listing just over 2 years ago and at the same time, investment funds started investigating real estate as a new sector to find a home for large amounts of cheap money, did media pick up on the potential of these startups; and as we all know, where investment money flows, so marketing budgets explode and consumer awareness grows. However as reported by TwentyCI a UK based property data company, whilst these online estate agents have grown year-on-year in absolute terms they barely amount to 6% of the total market. By comparison the NZ private selling market is c. 12%. Added to this is the fact that Purple Bricks (now a listed PLC) and others have recently in the UK tripped-up over a lack of transparency around the fees charged which are not refundable if the property does not sell, as well as finance charges for the deferment of the fees, creating a flood of media coverage likely to impact their growth.

Returning to the comment in the NBR, as to the notion that Savills investment in Yopa is a sign of the burgeoning of this sector in the UK - I would judge it is simply a smart each-way bet by Savills to see if the segment does challenge the incumbents. As for LJ Hooker in Australia, I judge that they got a little too enthused or better put, 'carried away' on the belief that they needed to launch a low price service and that is why they launched Settl which based on the information at the time was due to launch in the second half of 2016, however as yet no service is available - possibly LJ Hooker have got cold feet.

As to any Artificial Intelligence (AI) integration which some of these online agencies purport to offer. They are largely leveraging automated valuation models (AVM) and a rudimentary buyer / seller matching AI which as anyone who understands the principle of a two-sided market place, is only effective when you achieve scale on both sides of the market and none of these operators have anything like enough scale. The smarter use of AI in my view as an example in the UK was the acquisition by Rightmove (the UK's leading property portal) of predictive analytics company The Outside View in 2016, this company's smarts will leverage Rightmove's massive scale advantage of close on twenty years of data to undertake deep AI analytics to be the best at predicting the future sellers in the market thereby powering agent tools as a new business for Rightmove.

Moving away from the UK, Purple Bricks launched in Australia last year and now offer a service through local property experts (who have to be licensed) and who are a point of contact with the consumer through the process for which a fee of $6,000 (VIC / NSW) is charged. A US entry for Purple Bricks is currently underway. Interestingly the recent UK issues of transparency around the liability of consumers to pay the fees even if they don't sell, has now plagued the Australian operation with a $20,000 fine in Queensland as a solution to the avoidance of possible court action after alleged possible breaches of the Australian Consumer Law and the Property Occupations Act.

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New Zealand is not alone and has low price models - 200Square currently has a fixed fee of $4,500 and Tall Poppy have a fixed fee - well actually a sliding fixed fee: $500,000 property price: $12,000 / $1m price: $20,000 / $2m price: $30,000. There are also many operations in NZ charging 1% - most of these price based competitors have been round for many years and of course you may remember the 2007 flash of "The Joneses" with their "flat fee.. not fat fee" of $8,000.

Regardless of whether these various operations are labelled as online estate agents or fixed fee operations, they all stand behind one positioning strategy - they are low priced operators. As any marketing or MBA course will tell you, being the lowest price player in the market is not a sustainable place to build a long term business. A low cost operator now that is a sustainable platform for sure, but these are not low cost operators. The true low cost operation in this industry is the traditional business (as far as in the NZ model) because traditional real estate franchise groups don't employ salespeople, they are made up of local teams of independent commission-only contractors. Low price operations have by their very presence always to be looking over their shoulder to new competitors trying to undercut them, instead of building long term value in their brand and reputation.

Technology has the ability to drive out cost and improve efficiency, but when it comes to the real estate process as outlined in detail in my earlier article, efficiency through technology comes at a cost to the customer, largely that cost is in the loss of a trusted individual deeply engaged in the process end-to-end. For the low price operators such individuals tend to focus on being a pure lister (in the case of Purple Bricks) or a generic customer service answering contact points in the case of the other online agents.

Next article will focus on The True Innovators and finally I will examine The Opportunists


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:

comparison_asking_price_to_sales_price_REINZ_Realesatate.png

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.

comparison_asking_price_to_sales_price_REINZ_Realesatate.png

 

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!