Auctions causing buyer frustrations – I blame technology!
As someone who has spent over 7 years advocating the adoption of technology by the real estate industry in NZ, I must now adjust my position and state that I believe that it is technology that is frustrating buyers in the stressed Auckland property market.
The stories have become so commonplace that I sense we feel like we have almost been with these buyers in some vicarious way at their endless frustrating auction.
The young couple with the necessary deposit and pre-approved mortgage eagerly awaits the auction of their chosen dream home. The research tells them that the property is within their means with a maximum budget of $475,000, the property has a CV of $410,000 and the agents tells them that at their budget they should certainly be bidding. However the bidding exceeds their budget with the property selling for $585,000.
So what’s going wrong and why blame technology?
Simply put the web is the first and only place people look for property. It’s logical, buyers love the ability to search around their chosen parameters of location, size and price. However the greatest attribute of the search process turns out to be its greatest downfall – the search range of price.
Take this scenario of our hypothetical couple – they have a budget with a max of $475,000 so on Trade Me and Realestate.co.nz they search within their chosen suburbs with the range of $400,000 to $500,00. Website have price bands of $100,000 increments (Trade Me does have $50,00 increments up to $450,000). Their dream home came up in this search because the agent had included in the property details sent to Trade Me and Realestate.co.nz a 'Non-Display" search price of $500,000. The property was being marketed as an auction and therefore the agent did not want to display a price on the website, but it is mandatory for all listings on property websites to have a search price which is not published to power the search function.
It is my view that these wide price ranges are creating a false expectation amongst buyers and potentially misleading the public. To back up this view I have done some research to test my thinking.
I took a random sample of 10 properties on the market today, all marketed as auctions in Auckland City. These properties were in suburbs such as Onehunga, Mt Wellington, Mt Roskill, Blockhouse Bay and One Tree Hill. All properties were identified through the search price range of $500,000 to $600,000 being the average property price in Auckland today. I then went about undertaking a process to identify the exact search price or search price range for each property as inputted by the listing agent. To do this you need to use the Advanced Search feature on Realestate.co.nz which allows you to specify your own chosen price range in increments of a dollar; by doing this I was able to see at what price these properties appear or disappear from results. Also for reference and a sense of benchmarking (despite my dislike for CV’s) I got the Auckland City Capital Value for each property.
The results of this analysis were very interesting. Eight of the ten properties had a single search price inputted by the agent. The search price as compared to the current CV varied widely from 3% below the CV to 47% above the CV. The average was 23% above the CV.
However the thing that was most interesting to me, and what could potentially be construed as misleading, was the way these property appeared in a wide range of search results based on price ranges. Remember all of these properties appeared in the search range $500,000 to $600,000.
Property #1 with a CV of $470,000 appeared in all 3 searches from $400,000 to $700,000 as the agent had specified a search range of $500,000 to $600,000.
Three properties (#4, #5, #7) with CV’s from $410,000 to $440,000 appeared in the range $400,000 to $500,000 – all had a search price by the agent of $500,000 so clearly the agent was indicating a sales price of over $500,000 yet if you had a budget of say $425,000 these 3 properties would appear to be within your range.
Property #6 with a CV of $620,000 appeared in the price range of $500,000 to $600,000 as the agent had chosen a search price of $600,000, yet clearly the expectation was a selling price of over $600,000.
It is clear that the current wide price range search parameters could be leading to misinterpretation by buyers. To fix it the websites concerned could offer more options with smaller price ranges, as noted Realestate.co.nz in their advanced search function does allow for individual discrete price ranges to be entered. However there is a simpler solution.
Real estate websites could make a slight adjustment to the underlying code of search results so that search increments become $99,999 instead of $100,000. This would mean that when a search is made in the range $400,000 to $500,000 it only returns property with search prices between $400,000 and $499,999, thereby ensuring that a property for which the agent has selected the search price of $500,000 will not be found in such a search. In that way technology could help home shoppers match expectation to realistic budget better.