The Unconditional Blog

The impartial voice of the industry

 
24

The issue with property pricing

Posted on: November 9th, 2009 | Filed in Agent Tips, Money Matters

istock_000005764971xsmallWhilst the last 2 years has been heavily focused on the issue of property prices from the perspective of valuations – have they peaked?…. will they fall?….. will they collapse? or are they rising??

The current trend seems to be clear now with both the recent REINZ and QV stats showing strengthening prices.

The real issue facing the real estate industry is how to appropriately price a house when listing it on the market. If you wanted to sell a 4 year old low mileage European car or a second hand washing machine, all you need to do is let your mouse do the researching and see what similar age / condition items are selling for. Not so when it comes to a house.

Houses are not commodity items that are replicable en-masse or even frequently transacted, as the saying goes, every house is unique and every house has a value to someone – more often than not far in excess of what someone else might pay.

With this as a backdrop you can see the challenge this industry faces in judging an appropriate price to market a property. Such difficulty has in some occurrences lead to what I discovered the other day is termed ‘bait pricing’. This system which is well documented by Carl Slade on his Timaru Homes blog is clearly not to be condoned by anyone in the industry as it is clearly misleading or deceptive.

It would have to be the biggest source of emails received by our office from the public using the website and wondering firstly why every property cannot be listed with an asking price and secondly why ‘we’ seem to be deceptive in featuring properties in price range searches where clearly they are not!

The first of these issues is something that I cannot speak for on behalf of the industry. Unlike with consumer goods a recommended retail price is what you pay, but when it comes to property the price paid is always the result of the agreement of a willing buyer and a willing seller; that final agreed price may or may not bear any relevance to the advertised price.

So turning to the second issue of searching by price. We receive data concerning a property listing from individual offices every day – often up to 1,000 listings per day. We cannot and should not alter the data we are given – we do not know anything about the property in question nor do we own that data in terms of accuracy or completeness. This does not imply that we do not take seriously our role to ensure accuracy and completeness, it just recognises how we operate.

When it comes to pricing a listing we insist that each property has a display price or if the agent does not want to display a price then we must have a price range to power the search process of the website. If we receive neither we reject the listing.

The major issue therefore comes down to the appropriateness of a price range for a property. The narrower the range the better it will be for the public searching for property. Whilst I can hear the views of some in this industry who would say the greater the potential audience will be. To this I would say – let the public decide!

The majority of users of this website are smart enough to spend sufficient time to widen their price range to ensure they adequately research the market of potential property. It is very unlikely that a keen buyer will start with a very narrow price range.

Out of curiosity I did some analysis of the residential listings on our website to see how they were priced. The following charts detail these findings:

Residential listings on Realestate.co.nz as at Nov 2009 - 74,000 listings

Of the 74,000 residential listings on the site three quarters are marketed with a fixed price. The balance predominantly are ‘Negotiation’ or ‘Offers’ – just 5% are made up of Auctions and Tenders.

Breaking down those listings which are not displayed with a price, shows that across the range, the majority of listings for residential property on the website fall into a range whereby the maximum price is within 25% of the minimum. That is to say that the range could be from say $400,000 to $500,000 or from $250,000 to $310,000.

Price range on residential listings - Realestate.co.nz Nov 2009

However at the lower end of the pricing spectrum with properties with a minimum price below $250,000; half of all of these properties are listed  with a range of between 25% and 50% – so a range of say from $180,000 to $270,000.

Despite these ranges being the majority; there is no denying the fact that there are still 17% of all non-priced listings (2,100+) that have a maximum price in excess of 50% of the minimum – with the potential of say $420,000 to $630,000 at the very bottom of this range with some as wide as $450,000 to $700,000.

Article Discussion

  1. Mainlander says:

    There is much mention in this article about price ranges for example the above one of 180 to 270. When selecting the search band on the realestate.co.nz site to cover this range though, you would only be able to select $100 to $300k. How about this suggestion – change the search price bands to $50,000 segments rather than the present $100,000 ones.
    Would that not make search more relevant? Its not often I think that a house buyer would be looking $50,000 either side of their budget, more like $25,000 I suggest.

  2. Strummer says:

    Very intersting Alastair. Back in April you said:

    “As you rightly say many properties (over 55%) do not display a price. However as part of the data input to the website we require all offices to provide a price range will all listings, this is what drives the price search facility on the site.”

    http://www.unconditional.co.nz/blog/nz-property-report-march-2009.html#comment-4116

    In the data above, you now comment that only 26% of properties do not display a price.

    Is this a fundamental shift in attitude, or was your earlier number not correct? (Don’t mind if it was, I’ll just stop quoting it!).

    Cheers!

  3. Mainlander,

    A very good point – I must admit when writing this post I had my mind firmly in the function spec for our new website which will debut shortly. The functionality of the new site will be more user friendly allowing a far more refined search capability than the current site. I can only apologise that this is not applicable today – I was a bit ahead of myself.

  4. Strummer,

    It is one of the great attributes of social media – being brought to account on prior comments!

    I have to concede that the data quoted in March was not the most up-to-date data or the most authoritative data. I can confirm that the data provided above is accurate and comprehensive to the complete database of listings.

    A timely reminder for me to ensure that I do research and double check the answer to questions thoroughly.

    Having said that whilst I cannot find the source of my data that lead to the quote of 55% of listings don’t have a price, I do know it came from data at some point in time – therefore there has been a shift – a good shift towards greater openness of pricing.

  5. david david says:

    IN times of market flux who knows what the end selling price will be?
    In the last year I don’t believe that there has been a shift towards more openness in pricing, simply a more stable market has allowed agents to have more certainty regarding market value.
    Now that we are heading firmly into Sellers Market territory again, watch for the rise in NO Price Marketing again. By Negotiation, Deadline Private Treaty, and Tender will be words that once again become common place in real estate advertising.
    This is not the industry trying to deceive buyers or keep information from them, it is a proactive response to free market forces at work.

    Regarding search bands, my office has always tried to keep them reasonably wide to catch all the buyers who MAY be looking in that price band. Mainlander mentions $25k as a band that would suffice, but my more common experience (outside of the first home buyers bracket who zone in on the top end of their range to start) is that active buyers may end up looking in a 100k-200k band and sometimes more.

  6. John Butt says:

    I expect that most buyers do the simple thing when researching a property for sale, ie go to the local council website and look up the CV, why not save everybody the time and quote the CV and date. The price range does not have to be related to it, but it does give an optional search resource that can help.

  7. Steve Taylor says:

    Even CVs are not always accurate. We have seen a number of properties recently where ‘improvements’ have been done, but the rateable value was not changed. We recently got 100k above the incorrect CV. It takes a lot to convince buyers though that the price wanted was not a ‘dream price’.

  8. There seems to be a great deal of confusion in the real estate industry/legal profession over the requirement to provide an appraisal when it comes to listing a property for sale after the 17th of November however this is the actual wording from the Code of Conduct:

    Appraisals and pricing

    9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.

    9.6 An advertised price must clearly reflect the pricing expectations agreed with the client.

    9.7 A licensee must not mislead customers as to the price expectations of the client.

    So does this actually mean that an appraisal must be provided for all properties that are listed after 17th November?

    At various seminars I have attended in the last week I have been told YES it’s compulsory at the REINZ seminars, to NO it is not mandatory at others. Quite conflicting advice.

    Further information in the Code says:

    9.8 When inviting signature of an agency agreement a licensee must explain to a prospective client in writing –

    (a) the conditions under which commission must be paid and how commission is calculated, including an estimated cost (actual $ amount) of commission payable by the client, based on the APPRAISED PRICE of the land or business.

    So how do you calculate the commission without having first completed an appraisal upon which the commission is based and how do you use an advertised price without ascertaining by way of an appraisal what the seller wants?

    I believe that intent of the Real Estate Agents Authority is to remove an issue that previously led to many complaints ie over pitching to buy the listing in the first place only to give lower feedback a couple of weeks later.

    I would not want to be the first test case in this area, but I am sure that the idea of the clause was to make an appraisal a vital component of the listing process – that is the path we will follow in my office.

    If I am right then buyer customers will have an expectation that asking prices or price indications match the sellers thinking and if not a complaint to the REAA may result.

    This may make things very difficult for those who push Auctions and Tenders but time will tell.

  9. Further content from the code:

    5.1 A licensee must exercise skill, care, competence and diligence at all times when carrying out real estate agency work.

    5.2 A licensee must have a sound knowledge of the Act, regulations made pursuant to the Act, rules issued by the Authority (including these rules) and other legislation relevant to real estate agency work.

    Advertising and marketing

    9.16 A licensee must not advertise any land or business on terms that are different from those authorised by the client.

  10. Fascinating topic this and one that the new Act (with its appraisal rules) will tidy up to a certain extent. I thought everyone was doing auctions but as you’ve highlighted here Alistair I’m obviously in the minority (3%) having 80% of my listings go to auction.

    In my experience, over a 4 week period, potential buyers outnumber actual sellers by about 50 to 1. With a ratio like that it’s no wonder people often query search ranges. Sellers generally have no issue with them, but frustrated buyers trying to secure a property often do.

    In their frustration it’s common for buyers to be confused as to why a $1million property turns up in a $600,000 to $800,000 search.

    It could be because the property is entered in a $800,000 to $1million search range, and the 600k to 800k search picked it up. In this scenario the more educated 600k to 800k buyers will sense that the property is out of their league. The less educated are about to be educated. Like many things in life, there’s no quick fix or shortcut to success.

    If I was buying a home in an area that was totally unfamiliar to me and everything was auctioned or by neg, I would simply research recent sales, visit some priced homes and go to some auctions. After doing that I might become educated enough to make a wise purchase.

    The bottom line is that when buying property, I believe people need to take their responsibilities seriously. Many homes aren’t priced. Just accept it and get on with buying. If it’s one of the biggest purchases of your life, isn’t it worth a bit of research and education?

    I reckon one way realestate.co.nz can cut down on the perceived deception Alistair refers to above is to enter all properties received in the, say $800,000 to $1mil format, as $801,000 to $999,000. Simply tell your contributors that is how you do it and why. This strategy would stop lots of search complaints.

  11. John

    Thanks for the comment. The CV would be a valuable guide which I would love to feature on every listing, however this data whilst created for the local authorities – who provide a local government service, choose not to make it available.

    It does seem strange that this useful data is not freely available – we could by it from QV (a state owned enterprise) but the costs would be prohibitive as they charge on a per record basis.

    So the fact is as rate payers and tax payers we are asked to pay again for data that government organisations choose to use to tax us.

    As to Steve’s point he is right a current CV is not an accurate or consistent measure of a property’s value, it is a nummber upon which the local authority can calculate a rates charge. The bottom line the best valuations come from those people who operate professionally in the property market – valuers and real estate professionals.

  12. Ross said – This may make things very difficult for those who push Auctions and Tenders but time will tell.

    Ross, whether I list auctions, by neg, tender or by fixed price I’m giving both client and customer the same comparative sales data (the same CMA). Could this cause problems in your opinion?

    What about this scenario: Both buyer and seller are given CMA data between $900k and $1mil. Seller indicates $1.1mil expectation. Buyer asks seller expectation and is told that it is ‘above’ the CMA range (like many sellers’ expectations).

    9.7 A licensee must not mislead customers as to the price expectations of the client.

    Has the customer been misled in the above scenario? I say no. What say you? What will the REAA say?

  13. Ross says:

    Steve,

    In your example, I don’t see how the licensee has mislead anybody. However, if the property is advertised between $900k and $1mil, then there is likely to be a problem. But as long the licensee is relaying information about the price that is accurate, I don’t see how or why an issue would arise.

    Please note that there is no reason to give the buyer CMA data. My understanding is that a CMA is produced for the vendor. But ultimately, a CMA will be trumped by what price the vendor sets.

  14. Steve said “What about this scenario: Both buyer and seller are given CMA data between $900k and $1mil. Seller indicates $1.1mil expectation. Buyer asks seller expectation and is told that it is ‘above’ the CMA range (like many sellers’ expectations).”

    I expect that if salespeople told buyers that the appraised price was $900 to $1.1m then it would be highly unlikely that the property would sell for $1.1m.

    What I was getting at with the auction/tender comment is that until now salespeople would in many instances look at a property and say “too hard to price”, “let the market decide”, “get you a premium at auction” etc, etc.

    Then the property marketing starts and the salesperson begins the “underpitch”, “condition the vendor” stage and more than likely the seller will be upset with the final outcome.

  15. If the intent of the REAA is that an appraisal must be provide for all listings then the “bait pricing” issue will be resolved. Why else would REAA put this in the Code?

    I suspect that there will be a very early case on this and we will then have a full understanding of what was intended.

    Goven that the REINZ seminars say that appraisal is now complusory I would be interested to hear what Ray White, Harcourts, Barfoots, LJ Hooker believe is the intent of rule 9.5?

    There will no doubt be a massive campaign on TV, Newspapers etc related to the new Act and this will make buyers and sellers aware that homes must be appraised and that salespeople can no longer mislead with regard to vendors expectations – how are you going to know what the vendors expectations are without having a full and frank discussion about price which may or may not incorporate an appraisal.

    Alistair CV figure is available from http://www.akcity.govt.nz Property Guru/Terralink so could be incprporated into Zoodle listing for each property and then link off realestate.co.nz

    In my office we always provide a link to the council data for each property when we email new listings to buyers. If we have the Title, LIM or building report we provide that as well.

  16. Ross,

    Whilst you are right that many of the local authorities provide CV figures, however there is a vast difference between individual records and comprehensive data. Equally there is in the view of local authorities a difference between casual information for a home owner / browsers and data for commercial purposes – this is what our request is for.

    Property Guru from Terralink has the data, but they see value in the data due to the fact that some of it they acquire from QV and some they originate themselves.

    In theory it seems easy but to build and power a comprehensive national database and ensure it is up to date is a little more complex.

  17. We are not trained valuers, however, the new act appears to want to treat us as such. It will be fascinating to see in reality how words such as “realistically reflect” and “sales of similar land in similar locations” will be interpreted when some poor blighter gets hauled before the new authority.
    How similar do the comparables have to be? What if the figures show a certain value but the actual sale price is way above this because of market forces? Could the agent be liable in some way because the value turned out not to realistically reflect the end sale price?

    There are some agents saying nothing has changed, and others saying that they don’t give vendors price indications anyway and push for auction or tender to let the market decide.

    Does one now HAVE to give an appraisal before,during or after listing a house? Nothing says that it is mandatory.

  18. David, keen to see an answer to your question above about having to provide a CMA.

    Regarding misleading customers about vendor’s price expectations, it is impossible to mislead anyone if you don’t know their expectations. Does anyone see any problem with the strategy of not asking what the vendor’s expectations are. (For clarification – about 50% of my current listings proceed on this basis).

    I know it is not in the spirit of saving buyer’s time, but can anyone tell me what ‘vendor expectations’ have to do with the final sale price. Plenty of vendors have expectations that are too low and they risk being ripped off by agents and buyers if they disclose them, CMA or no CMA.

  19. Ross, like you, I used to believe the Jenman philosphy about auctions before I learnt how to do them better than he would bother to learn how to.

  20. David – this was released from REINZ today:

    Appraisals required for every agency agreement
    The Institute advises all members that the practice rules contained in the Code of Professional Conduct and Client Care require an appraisal to be carried out in the case of every agency agreement. This arises out of Rule 9.8 (a) of the Authority’s Code of Conduct which provides that when a licensee is inviting a client to sign an agency agreement, he or she is required to explain to the prospective client, in writing, the conditions under which commission must be paid and how commission is calculated, including an estimated cost (a dollar amount) of commission payable by the client, based on the appraised price of the land or business.
    Rule 9.5 requires every appraisal to be in writing.

    The Institute recognises the difficulties licensees selling certain types of land or business will face as a result of these requirements. As they stand, however, the Rules do not create any exceptions for certain types of land or business. The Institute will be raising this issue in future discussions with the Authority and will keep members informed of progress.

    Regards
    REINZ

  21. So – do we believe REINZ interpretation is correct?

  22. Andrew Burns says:

    I just had a look through Gisborne listings, 200000-300000 range which includes the medium price for the region. Of the 132 listings only 65 were fixed price or 49%. The rest were auction/tender/POA etc.
    Any ideas why?

  23. Andrew

    Clearly within any subset of a database set of 55,000 current listings of residential and lifestyle properties across the country you will find variances of the proportion of those being marketed by different methods.

    Certainly as cited in recent posts the vast majority of auctions are being undertaken in Auckland and the other two main cities.

    I hope that answers the question posed.

  24. Andrew Burns says:

    I have invested in Gisborne city realestate since 2001 and over that time auctions, tenders etc. have been most common (except for 2008). Gisborne as a region has been hit hard by the recession. I was just pondering why this region seems to be bucking the national marketing trend.

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