Steve Koerber's Remuera Property Blog

I did some rough calculations the other day and worked out that there were approximately 5000 open homes conducted in Remuera in 2009.  At an average of (say) seven groups per open home that would equate to approximately 35,000 visits.  A lot of people zooming around the streets.

In 2009, 500 homes sold in Remuera.  If 250 sold as a direct result of being open, each open home had about a 5% chance of achieving a sale.

For every 20 hours spent opening homes, on average approximately one home was sold.  This means, on average, every 30th to 40th open home produced a sale.

When sellers ask if we will be doing open homes on their home, what do we say to them?  Do we tell them the truth regarding the actual effectiveness of open homes? 

Do we do open homes because, yes there is a slim hope of finding a buyer, but mostly we are more likely to meet potential future sellers?

Do our sellers deserve to be told the truth?  Would the truth set you free? 

If all your listings were marketed as “viewing by appointment” would you sell fewer homes?  Would your sellers think you were lazy?  Or smart?

CMA = Comparative Market Analysis.  Strange animal.

Since November last year all licensees have been required to compile a CMA for every new listing.

For some agents CMAs are easier to compile because of the style of property they deal with.  The houses in some agent’s areas are all very similar.  Similar size & shape, similar construction, similar section sizes, etc.  Easy to do a CMA there I suppose.  Like pricing a used car.  The difference in value between neighbours could be judged by the relative freshness of the paint or the tidyness of the garden.  Give me rows and rows of Coronation Street houses any day! 

Don’t get me wrong, I’m not moaning about having to sell homes in leafy Remuera.  It’s a nice place to work.  BUT – you couldn’t get a more different place from Coro Street physically, literally, geographically, topographically.  It’s not uncommon for a house to sell for $1million, then the somewhat nicer house next door sells for $3million.  Go figure!

I have respect for our valuer colleagues but I’ve always marvelled at how difficult their job is (especially in non-Coro areas).  How on earth do they accurately value a home when they’re comparing sales of homes they’ve never been inside?  I suppose the answer is ”they do the best they can with the tools, knowledge & training they have”.  Oftentimes valuers get it right, but sometimes they get it wrong.  When agents are asked to (now required to) ”appraise” someone’s home they suffer from the same human condition.  They sometimes get it wrong too.  I certainly have.

So how do real estate agents (in areas unlike Coro St) provide CMA’s that are as reliable (or even more reliable) than a valuer’s registered valuation?  I’m glad you asked.

Having spent many hours poring over sales statistics to do CMAs this past month, I believe the only way an agent can be accurate (or even close to accurate) is if the agent has been inside the homes they choose to insert into their CMA. 

Of course it’s impossible for agents to internally inspect every home that has sold, but the next best thing, to further improve the industry’s professionalism and accuracy, is to change the way CMA’s are done. 

Imagine this new rule if imposed by the REAA:  ”At least 20% of properties used as comparisons must have been inspected internally & externally by the agent who signs the CMA”.  (Or how about 40%?)

Consider the implications of such a rule change:

1. Agents would need to caravan more properties (better product knowledge)
2. Rookies would need manager or experienced agent input (in line with the new Act/REAA philosophy)
3. Would ’low market share’ agencies get to see 20% of all listings? (highlights limitations of low market share)

In order of importance:

1.  Select the right agent.  Any agent can list your home, but few can sell it with a minimum of fuss and a level of expertise that matches the fee they charge.  Trust, negotiation skills, ability to listen and local knowledge are more important than most vendors realise.

2.  Get the price right from day one.  Match your circumstances and your home to the correct method of sale and you’ll win every time.  If your car is worth $20,000, would you advertise it at $35,000?

3.  Get the presentation right.  First impressions can make or break a sale.  Homes with major negatives will sell if a buyer feels good once they’ve been inside.

4.  Get the marketing right.  You can’t sell a secret.  Great photography, a guided video tour, upgraded internet listings, large print ads, an eye-catching sign, a great heading, tempting copy…or a buyer your agent met yesterday at another listing?  Appropriate marketing doesn’t cost, it pays!

5.  Tap into a large pool of buyers.  If marketing doesn’t find your buyer, a large network of agents and buyers probably will.  Boutique agencies rely heavily on marketing.  A major player like Barfoot & Thompson will always recommend marketing - then add value with the largest buyer/agent network in Auckland.

It’s time to stop beating around the bush and tackle New Zealand’s leaky homes crisis head on.

To start with, New Zealand needs to enact new legislation to protect buyers and sellers of at-risk homes.  Until now there has been too much focus on finding people to blame and recovering money lost.  The Weathertight Homes Resolution Services Act 2006 was set up to provide speedy, flexible and cost-effective procedures for resolving leaky home disputes as an alternative to the courts.

The Act might help you if you own a leaky home, but what about the thousands of genuine, unsuspecting people who are out there trying to buy a new home or investment.  What measures were put in place to protect them?  The answer – None!

Most people don’t know/won’t admit the extent of New Zealand’s leaky home problems.  Newspaper reports often try to tally up the current and future cost of cleaning up the problem.  Most estimates talk in the billions of dollars.  That is a big problem.

Most plaster homes are worth less than their (for example) brick equivalents.  This is partly due to stigma and partly due to previous, existing or possible future water ingress.  Not all plaster homes leak.  Many will never leak.  But if you were buying, how would you really know how safe your $500,000 or $1,000,000 investment is? 

Many owners of (broadly speaking) 1991 to 2003 homes think their home might look like other leaky homes, but couldn’t possibly be one.  In my experience, many are sadly mistaken and could suffer emotionally and financially sometime in the future.  If nothing else, the plaster stigma is going to cost them money.  That is sad.

A classic example of what is going on right now is as follows:  A plaster home is listed for sale by an owner who knows their home was built during the “danger’ years.  They don’t have a pre-sale inspection done.  A buyer has a pre-purchase inspection done and fails the house, walks away.  The house is then listed with a new agent (for obvious reasons!).  Another buyer has an inspection done and buys the house.  Two different inspectors, two different buyers, two different agents, two different outcomes.  Too many variables and variations of opinion.  No set rules from Government to adequately protect buyer or seller.  Very much “buyer beware”.  Nobody taking responsibility for the original poor building practices.  Shouldn’t the Government take this responsibility?  I say yes!

I have a big problem with the fact that new immigrants (and some locals) are being literally stitched up into potentially leaky or (actually) leaky homes.  (Update:  Sometimes sellers know there’s  a problem and hide it from all parties, sometimes they simply don’t know).  At-risk homes are still selling without the buyer approving a building inspection report.

This is where Government must step in to protect the citizens of this country. 

If a house leaks and is bought “eyes shut” by a new immigrant for $1million, the actual value of that house could be, say, $800,000 if the problems had been/were found/known.  If this immigrant stays a few years then sells under the same circumstances (to another buyer) then the problem is hidden again.  The value of the house remains artificially inflated until finally the problem(s) is/are discovered.

This is what Government needs to do:

Legislate that all homes constructed in the danger period (to be defined) cannot be listed for sale or sold without having a Government directed and tightly controlled inspection report attached to the listing agreement and the sale and purchase agreement.

Shock horror this will cost homeowners about $1000 to have done, but that is a cost they will just have to wear.  If Government really wants to help, Government could subsidise this from the funds they will save by generating fewer court cases in the future.

This would then be the scenario when a leaking home is listed for sale (like the $1million one referred to above):  The thorough report (includes invasive tests, moisture readings etc) would be viewed by the buyer.  The buyer would decide to pay about $800,000 due to high moisture readings found in some areas.  The sellers would understand why the buyer is offering such a low figure, after all they had a chance to make repairs but worked out repairs might cost them about $200,000.  If they had done repairs, the house might be worth $1million.  The inspection report would form part of the sale and purchase agreement by law.

Finally, the problems caused by bad building practices in the past are brought into the open and the problem is solved.  More leaky homes would be repaired more quickly than under any other program proposed in the past.

Of course this doesn’t help owners who never intend to sell, but at least it would be a great way to protect consumers buying houses. 

Fast forward twenty one years to the year 2030.  A recently painted and refurbished plaster townhouse comes on the market for the first time since built in 1998.  The listing includes a very comprehensive Government controlled building inspection report that shows serious problems, not the least crumbling timber framing and some walls with 40% moisture content.  The house sells for land value only.

Leaky homes are worth less than non-leaky ones and the sooner these homes find their real value the better.  Now is the time to legislate and protect consumers as described above.

Anyone agree/disagree?

Whenever I sell a popular home at auction I receive lots of phone calls after the event.  The calls are mainly from buyers who were unable to bid due to their circumstances.  People often want to know how much a home sold for so that they can compare it with others they’ve seen (or are likely to see) on the market.

One of my recent auctions attracted around 400 people during the 3 week marketing period.  The auction had 8+ registered bidders and sold for a great price. 

Early on I knew that if the auction program was correctly managed, I would achieve an exceptional result.  Several pre-auction offers were submitted.  In consultation with the owners we agreed not to sell circa $500,000 and to wait until auction.  They agreed, we waited, and sold for much more at $537,500.

From day one I was keen to prove a very important point with this auction.  A very similar home nearby (but not renovated) sold  a month earlier well under $500,000.  That home wasn’t auctioned, had 2 or 3 offers submitted and sold within days of hitting the market.

I had a great opportunity to prove that the logical way to sell a popular home is by auction.  If you’re a potential seller, please note that the owners of both these homes paid a similar fee to their agent.  My point is this – my owner got much better value, for the same cost. (Yes, I have an ego , they chose the right agent).

But that’s not the end of the story.  After auction sales I always ask my callers to guess the sale price before I tell them what it was.  This is a fascinating exercise and the range of guesses is always huge. (This validates my theory that you can’t accurately appraise or guess real value before you determine it via a sale)

After the above auction I received a call from a fellow who was keen to know the sale price.  His guess was $500,000 or $510,000.  When I told him $537,500 he was shocked that it was so high. 

I then discovered that he had just accepted a private offer under $500,000 for his house nearby.  That is why he was shocked!  He was thinking – Have I under-sold?  When he asked if I had similar homes available for him to buy, the reality of the situation dawned on him.  Even if I did, there were 8 people lined up to buy it.  Scary but true.

As a seller, if you really know the market and have your finger firmly on the pulse, selling privately might be a real option for you.  My concern for you is this:  if you misinterpret market conditions you might be surprised how much a good agent could get you for your home.  Especially at the moment in Auckland, it’s important to make people compete for the right to buy your home.

The selling process needs to be managed carefully from day one.  I hope this story demonstrates the value a good agent (and a good process) can add.  Take it from me, if you’re selling privately in the current market, there’s a big chance you’ll lose money.

About five years ago I sold two houses for a family who eventually traded up to a bigger and better home.  Negotiations on both properties went smoothly, however the family was not entirely satisfied because the prices achieved fell well short of their (high) expectations.

I recently learnt (through a mutual friend) that the family is thinking again about selling.  My friend naturally assumed they would give me the listing, but to his surprise, the family wasn’t so sure.  They said “Steve is too hard on price”.  My friend was astounded and begged to differ (thank goodness!).

I’m sharing this story with you to illustrate, from my perspective, why home sellers’ initial price expectations often adversely affect the eventual sale price.  It might surprise you to know that these days, when I meet a potential home seller I completely disregard their price expectations.  I’d rather not know!  Let me explain why I do this.   

I’m sure you’ll agree that home sellers usually want better than fair value, and buyers usually want to pay less than fair value.  When buyers have plenty of choice they often smell a “high expectation” from a mile away.  Savvy buyers avoid homes with high expectations like the plague.  Wouldn’t you?

Picture an agent representing a home that’s worth $1million.  Imagine the asking price is $1.5million.  The agent’s body language alone will often alert buyers to a problem.  Extracting an offer might be impossible.  The buyer will look elsewhere and the same agent will probably escort them there!

In the case of a buyer that should be buying, I employ a strategy I describe as “playing in the buyer’s sandpit”.  For the record, I rarely have asking prices on my listings.  When I find a good buyer who wants to know vendor expectations, I simply win their trust by being empathetic about “their” price opinion.  By asking appropriate questions, I might discover that a buyer would pay $950,000 for the $1million property mentioned above.  But that’s not where it ends.  I want that buyer to stretch themselves as far over $1million as I can get them.  That’s my job.

At or below fair value there are always several buyers for every home.  That’s a fact you can’t argue.  So what do I do to fulfill or exceed my seller’s expectations?  I “build a sandpit” and get to know the buyers who jump into it until they fight each other for the right to own the home.  A great way to do this is to run an auction campaign.  More often than not, my sellers’ expectations are met or exceeded.  If they’re not, it’s usually only because their expectations were too high in the first place.  Or put another way, their sandpit is not as fun to play in as the one where all the real buyers are playing. 

Would I do things differently if the family in the first paragraph does list their home with me?  Absolutely!  This time I won’t disclose their expectations.  But I will disclose recent comparative sales and let the buyers decide how much they will pay.  If their expectations are high again, they’re probably irrelevant to the actual value.  One thing is for certain though – by not focusing on their expectations I’ll find out how much the market is willing to pay.  They’ll receive an offer they can choose to accept or refuse.  If we’re lucky their expectations will be met or exceeded.

I just wanted to clear up a common misconception regarding real estate commissions.  I often hear people say that in NZ our commissions are higher than some other countries.  A figure of 4% is often ‘bandied about’ and people complain that this is high.

It’s important to get the facts right.  No real estate company in NZ charges 4% on a typical house sale.  However, a small component of commission is sometimes charged at 4% or 3.95%.  Have a look at this: 

Residential Commissions (including GST)

Independently researched and audited by Chatfield & Co, Chartered Accountants May 2008.  Calculations include GST.

As you can see, with Barfoot & Thompson, on a $1,000,000 house sale the owner pays just over $29,081 incl gst.  As you can see, this is about 2.9% of the total sale price (not the 4% abovementioned). 

To put this percentage into perspective and compare it outside the real estate industry, many mutual funds, superannuation funds etc (investments you may have) charge a similar annual management fee on the total dollar amount you have invested with them.  Check the annual fees on your (relatively speaking passive) Kiwisaver fund and you’ll see what I mean.

Most property managers charge around 7.5% of the rent to manage your investment property.

Whilst many readers will argue (until the cows come home!) that real estate commissions are expensive, when you look at the percentages, they’re not that bad after all.  And if you do some thorough research and find an experienced negotiator to help sell your home, you might “feel” as if you’ve paid no fee because you received such great service and a mind-blowing price.  Isn’t that what you’d expect for, say, $29,081?

When I fill my car with petrol I’m usually reasonably well dressed. My car’s not shabby either – an understated but nice looking Subaru Legacy sedan.

I don’t know about you, but I quite like the fact that I’ve never pre-paid for my petrol. Not even late at night.

The thought of pre-paying gets up my nose. I understand why service stations need to enforce it, but I would find it all rather inconvenient.

Last week I asked the cashier why he didn’t make me pre-pay. He just smiled. I then asked him how he chooses the customers that must pre-pay.

I guess the answer was always going to be quite obvious. Scruffy types in older cars that “might” be a theft risk.

It got me thinking about how important “first impressions” are and how often people consciously or sub-consciously judge you.

If first impressions are powerful enough to put you either in or out of the “potential thief” category, imagine how important it is to get your home looking, smelling and feeling fantastic when you’re trying to sell it.

First impressions do count.  Bigtime!

Whenever I sell a popular home at auction I receive lots of phone calls after the event.  The calls are mainly from buyers who were unable to bid due to their circumstances.  People often want to know how much a home sold for so that they can compare it with others they’ve seen (or are likely to see) on the market.

One of my recent auctions attracted around 400 people during the 3 week marketing period.  The auction had 8+ registered bidders and sold for a great price. 

Early on I knew that if the auction program was correctly managed, I would achieve an exceptional result.  Several pre-auction offers were submitted.  In consultation with the owners we agreed not to sell circa $500,000 and to wait until auction.  They agreed, we waited, and sold for much more at $537,500.

From day one I was keen to prove a very important point with this auction.  A very similar home nearby (but not renovated) sold  a month earlier well under $500,000.  That home wasn’t auctioned, had 2 or 3 offers submitted and sold within days of hitting the market.

I had a great opportunity to prove that the logical way to sell a popular home is by auction.  If you’re a potential seller, please note that the owners of both these homes paid a similar fee to their agent.  My point is this – my owner got much better value, for the same cost. (Yes, I have an ego , they chose the right agent).

But that’s not the end of the story.  After the sale I often ask my callers to guess the sale price before I tell them what it was.  This is a fascinating exercise and the range of guesses is always huge.

Today I received a call from a fellow who was keen to know the sale price of this auction.  His guess was $500,000 or $510,000.  When I told him $537,500 he was shocked that it was so high. 

I then discovered that he had just accepted a private offer under $500,000 for his house nearby.  That is why he was shocked!  He was thinking – Have I under-sold?  When he asked if I had similar homes available for him to buy, the reality of the situation dawned on him.  Even if I did, there were 8 people lined up to buy it.  Scary but true.

As a seller, if you really know the market and have your finger firmly on the pulse, selling privately might be a real option for you.  My concern for you is this:  if you misinterpret market conditions you might be surprised how much a good agent could get you for your home. 

The selling process needs to be managed carefully from day one.  I hope this story demonstrates the value a good agent can add.

I realise that most people reading this blog are currently neither buyers nor sellers of real estate in Auckland. 

However, if you are considering buying at the moment, I envy you.  You have plenty of choice.  If you’re clever and well researched you’ll make a safe purchase.  Like all long term residential property owners in Auckland since the 1950′s, you’ll probably achieve a similar long term return and be glad you bought when you did.  Trying to time the real estate market is a mug’s game.  For long term success, the most important thing is to play the game and get into it.  

If you’re a seller, you might be wondering whether it is a good time to sell.  The answer is simple.  If you need to sell, you should.  If you don’t need to sell, it might be best to wait for a while. 

If you’re currently on the market and you don’t need to sell, your home is probably priced above the market.  A positive outcome is that you’ll be helping those who need to sell, to sell.  Because a real seller’s price will look better than yours, buyers will be drawn away from yours to theirs.

So, if you really want to sell, should you simply price your home low?  Should you set a price then drop it regularly until you sell?  I believe the answer is no!

Recently I’ve helped many real sellers achieve good sales (within a 4 week time frame) by not pricing their homes at all.  How have I done this?

Instead of telling potential buyers what they should pay for a home (ala having an asking price), I’ve simply asked real buyers to nominate what they would be prepared to pay.  I’ve then shared their opinion with others who have expressed interest.  By sharing this valuable information amongst a group of people that have all expressed interest, I’ve been able to A) sell the home to the keenest member of the group, and B) convince them to compete with other like-minded people within the group. 

At the right price level you’ll always find a buyer, or two or three or more.  I love the “no reserve” auction concept as the purest and quickest way to establish a property’s market value. 

A “no reserve” auction is a little scary for most sellers to seriously contemplate.  However, if done right, with appropriate marketing exposure and hype, it’s actually a pretty safe bet for sellers who really need to sell.

If your’e a little less adventurous you can always try a standard “reserve auction” and maintain a bit more control over the sale price.