Gap narrows between asking price and sale price in Auckland

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It would make logical sense to see a correlation between the asking price for property and the selling price.

One will lead the other. There is likely to be a lag between the trends and equally there is likely to be a difference, naturally asking price will be higher than sale price.

All seems logical and intuitive – that was what I thought, and that was my first reaction when I read the news article this morning regarding the monthly NZ Property Report from Realestate.co.nz. The article quoted Paul McKenzie as saying “there was no significant discrepancy between asking and sale prices. They're normally pretty close. There are months when there are slight differences in ups or downs, but you're talking small percentages."

That type of comment always makes me keen to dive right into the data to see what the facts actually show and what can be interpreted. What I found was interesting – nationally there is a consistent ratio between sales price and asking price, but in Auckland not. Auckland is currently seeing a fairly significant convergence with the gap narrowing to around 5%.

The data

Taking the national data from REINZ of stratified median sales price and the Realestate.co.nz truncated mean asking price for the past 5 years provides a picture of the correlation as shown below for the data for the whole of NZ.

This shows a pretty stable picture over most of the past 3 years whereby the sales price is around a level of 15% below the asking price. There is a slight rise over the past 6 months. (Note the chart shows the 6 months moving average as the solid red line).

Now there is an important point of interpretation here. The asking price used in this analysis is based on all new listing coming onto the market in the respective month. The asking price is either the advertised price or the mid point of a price range if no advertised price is shown as in the case of auctions, tenders and other pricing methods that do not display a price.

Now contrast the chart for NZ with the same chart for Auckland and we see a whole different picture. Overall the correlation between asking price and sales price is smaller and over the past 18 months the trend has been a significant narrowing of the gap to where it is now close to just 5%. It would appear that whereas across the whole country property sells for around 15% less than the asking price, in Auckland it is just 5% less.

Hypothesis

So what could explain this situation? – is it a function of the rising Auckland house prices? Could it be more cautious real estate agents not pricing property too far ahead of expectation in Auckland?

Or could it be a whole different answer, that for example agents around the rest of the country try and be more bullish and advertise property with asking prices at least 15% higher to see what potential there is in the market.

The fact is I don’t know as there is no further data to analyse, however I could be tempted to offer this one hypothesis to see what reaction it provokes.

Auckland has a much higher level of property marketed for auction than any other part of the country – somewhere around 25% of all new listings. Properties listed for sale by auction are not displayed with a price but with a range. Agents who want to attract as many buyers as possible, maybe pitch a property with a range that is below the current market price.

Certainly anecdotal comments in the media constantly seem to focus on buyers becoming frustrated that property they go and see (after checking out property online) ends up selling well above the expectation.

Maybe what we need is for property websites as the primary display medium for real estate to  display a clear price range for all property so as to bring more transparency into the process?