League tables for suburb performance based on medians can make for popular reading. However the results should often be challenged, especially where sample sizes are small, property sales not representative or where the price ‘distribution curve’ is skewed.

For an agent working in one of these ‘worst’ suburbs, it is always good to know the ‘true’ growth figure, especially when questions or concerns are raised by vendors or purchasers. Sometimes the truth may be that one of your local suburbs is performing poorly, however if it is the result of some statistical anomaly, you certainly do not want to be troubled by it when already facing tough market conditions.

Let’s look at two recently published ‘worst’ suburbs:

Bellara 4507 QLD Units

The published figure states a ‘minus 65%’ growth rate. The suburb has around 10 sales per quarter currently, giving us a median of around $116,000. Back in Q2, 2010 we saw just 4 sales, which returned a median of $360k.

Neither the current samples of 10 or the prior sample of 4 are large enough to rely upon. If we changed our sample time period from 3 months to 6 months, we see an entirely different result. Using 6 months to October 2011 gives us a median of $115k and a sample size of 15. The same period 12 months earlier returns a median of $110k and a sample of 15 as well. The growth rate using this approach returns a plus 5% result. This result is very different from the minus 65%.

Whilst the sample size of 15 is much more reliable than the quarterly sample size, the reliability of the data should probably be questioned due to the ‘distribution’. Using a ‘price segmentation graph’ we would prefer to see something that looks a little bit like a bell-shaped curve in the current sample and also the prior year sample. Without both periods offering us an approximately normal distribution of values, we can’t rely on the plus 5% result.

East Melbourne Houses

The league table states this suburb has fallen in value by 43% in the last 12 months. When we look at the total number of sales in the last 6 months (to October 2011) we count just 2 sales! It is hardly a representative sample size. Even if we expand the sample period to 12 months till Oct’ 2011 we still only have 8 sales.

Using the full 12 month sample period returns an entirely different result. The median for the last 12 months was $1.88m. Compared to the year prior (median of $1.67m) we can arrive at a positive growth rate of nearly +13%.

As per our Bellara sample, the price distribution hardly resembles a bell shaped curve and indicates that the result may be unreliable.

Tips:

Whilst by no means an exhaustive list, here are a few tips for agents when reviewing median prices.

• As a general rule, try and work with sample sizes of around 20
• If comparing time periods, ensure you maintain apples with apples (e.g. 6 month sample periods)
• Look at the price segmentation graph – it ideally should a little like a bell-curve
• Watch out for new unit developments or new house and land releases. They will boost medians short-term and can often have the reverse effect long term.
• Expand your sample from suburb to postcode if required. If sales volumes still too low, you may have to expand to LGA.

Kent Lardner

www.pricefinder.com.au

AVM basics
Dozens of white-papers and books are available online on both AVMs and home price index methods. However with the exception of a few books written specifically for appraisers in the US, most of the material is written in statistician speak using complex language and symbols. The authors seem to be more interested in impressing their geeky peers than to explain the topics in simple terms.

A computer generated AVM (automated valuation model) uses sales data and one of 3 main techniques to produce a price estimate. The first is a simple ‘Index’ approach, taking the last sale date and sale price and adjusting its value according to market movement. If the last sale price was ‘right’ and occurred within the last 7 years, it is often one or the more accurate models. However in volatile markets or suburbs with few sales to work with, the index can be less reliable. The same data problems that impact AVMs can also impact the Index itself, making it hard to accurately measure how much a market price has changed. So if you combine a dodgy last sale price and a low-turnover market, the Index method can return poor results.

The next method is often referred to as an ‘hedonic’ or ‘regression’ model. Think of this model as estimating a square metre rate for the lot size and a value per bedroom and bathroom. By fitting a straight line to the data, we expect lower prices for smaller homes and higher prices for larger homes, returning a slope value. Once we know the ‘coefficient’ values for lot size and house size, we can estimate the price of the subject property. In homogenous markets with high volumes of sales, the regression model can often work well. However where the quality of dwellings varies significantly or where some streets are more valuable than others, this model starts to struggle.

The third model seeks to match a handful of properties to the subject property. Many AVM companies around the world refer to this approach as the ‘expert model’, as it endeavours to emulate the process used by a professional valuer or real estate expert. This can include looking at sales from the same street and similar streets, matching similar sized lot sizes and house sizes. This approach can also leverage aspects of the two earlier models, using the index to adjust older sales that enter the final comparables list according to any market movement. Size differences may exist, even after the comparables have been selected based on how well they match the subject property (lot size and house size). For example, if one of the comparables is 50 sqm larger in lot size than the subject, the computer can automatically adjust the sale price by the coefficient value ($n x 50 sqm).

Whilst often superior to the regression model, the expert model also has its limitations. The computer will only ever match sales based on what it can measure; this includes time, distance from the subject property, street type, lot size and house size. But as any real-estate agent would know, these measures can often only account for part of the price. Factors such as views, construction quality and street appeal are just a few of the variables that can determine prices in your area.

Challenges for agents
Agent web sites in the US are great sources for stories about ‘Zestimates’ and how they can often adversely impact a listing or sale.

As one first-time buying couple discovered, the Zillow’s ZEstimated value range on a potential new home was $1,100,000 to $1,200,000. SO, while the listed price on the home was over $1.4 million, these buyers cited the Zillow ZEstimate as the reason for their low-ball offer of $1.2 million. Needless to say, the property was sold to another buyer, and at a price well over the Zillow estimate

The problems most commonly highlighted include buyers or sellers not using the AVM as the starting point in the review process. In the case of buyers – some will gravitate to the AVM that is below the value of the listing to support a low ball offer. In the case of sellers, some are drawn to the AVM result that is higher than the true market value. Both situations have the potential to become tricky for agents.

On the whole, most buyers and sellers are smart enough to know the limitations of the models. However agents really need to be equipped to handle every situation.

Tips

• As you prepare for a listing presentation, run one or two AVMs. If included in your data subscription, you won’t need to worry about transactional costs. If the AVM is available for free online via a portal, this should not be too hard to do. Check if the AVM result is accurate or not relative to the price you think is right.
• Know your local market and how AVMs perform in your area. If the models are always ‘low confidence’ the AVM report will usually display a red traffic light. Know how to explain this to buyers and sellers who may not notice or appreciate its meaning.
• Be aware of how unique properties perform via an AVM.
• Keep of file of AVM reports that show high errors. Showing a few dud results will come in handy when explaining the limitations of AVMs to a vendor.
• Consider adding property data and AVM methods to your team training.

Kent Lardner
COO PriceFinder

Here is what Jonathan has to say about this week’s launch of Property Observer “I have been writing about property for more than 25 years, and I’ve learnt that getting passionate about property is easy. Getting it right is trickier. I intend for Property Observer to be property central, providing the essential news and analysis on the ins and outs of property. We will cover the capital cities, up and down the coast, and inland to the regional towns and the bush.

We will offer plenty of authoritative coverage about the homes we live in and the investments that top up our incomes.

Property Observer will showcase the best houses and apartments and all the big-name buyers and sellers. We will also keep a watchful eye on new developments, and the plush over-55 developments that seek out the growing band of empty nesters.

Property Observer will capture the changing seasons – we will write about snow homes, vineyards, fishing lodges, marinas and even the occasional beach bathing box. We aim to be of interest to the owner-occupier and the investor, given that population and investment funds are more fluid than ever.

I intend for commercial investment property to be a key component, especially the opportunities on high street – retail neighbourhood shops, small strata offices, pubs and industrial strata. All are suitable for the self-managed super fund investor.

The website will offer wisdom on winning ways with property commentary from key economic and industry practitioners. We won’t overlook the property fundamentals, conveyancing clues, legal rulings and tax advice.

We want input from readers on market prices in their local patches, facilitating shared knowledge through dialogue, so let us know about your stories, insights and properties.”

It’s not just about bricks and mortar, as Property Observer will personalise property with interviews of the movers and shakers.

We want our readers to get wisdom, not clichés. And that way we’ll all be the wealthier.”

The content is excellent and a great assistance for real estate agents writing blogs as it is full of relevant data, analysis and commentaries.

You can also follow Property Observer on Twitter – @Propertyobs Make sure you subscribe to the email alerts too.

OzHomevalue is a Realestate.com.au owned website for property vendors providing them with sales data information in relation to the suburb where the vendor’s property is located. From their homepage:

OzHomeValue provides a comprehensive property report to help find the value of your home. Try our easy to use, obligation free system and receive your FREE property report.

Well, it is not entirely obligation free given after a vendor fills in the form and receives a free property report, their contact details are then sold to local agents who contact the vendor regarding a appraisal.

But what’s more interesting about OzHomevalue is the sold data provided in the free property report. These property reports showcase recently sold properties and a Price Range for each property in the suburb where the vendor’s property is located. It’s this Price Range which is provided for sold properties which raises the question as to whether a property vendor’s privacy is being breached. Given most vendors explicitly request their agents do not publish sold prices, why then do all of these prices appear?

Given Ozhomevalue is owned by Realestate.com.au then a reasonable assumption is that REA are providing Ozhomesvalue with this sold data. As the sold dates of the properties in the report are between April 4 and April 12, 2011 than this sold data has not been sourced from the Valuers Generals office (because settlement has not occurred). Therefore more likley than not, this sold data is what has been reported on Realestate.com.au by agents once a property has sold. What’s interesting is, if you look at the sold properties on Realestate.com.au which are listed in the Ozhomevalue property report, you will see the price (for most properties) is not displayed on Realestate.com.au but is displayed on Ozhomevalue.com.au.

A perfect example of this is if you click on the sample property report on the Ozhomevalue.com.au website (after this post was published they updated their report to change the results but you can see a ozhomevalue_sample_report.)

You will see there are 12 recently sold properties in the report. Now if you search the sold properties on Realestate.com.au you will see that 11 out of the 12 properties do not have the sold price displayed. Below are the 12 properties in the report. Although the report outlines the property prices I have substituted the price with $X  to maintain the vendor’s privacy.

1. 197-199 Castlereagh Street SYDNEY – $X (REA No Price)*
2. 612/2 York Street, SYDNEY – $X (REA NO Price)*
3. 3701/129 Harrington Street, SYDNEY – $X (REA NO Price)*
4. 324/298 – 300 Sussex Street, SYDNEY – $X (REA NO Price)
5. 1307/98 Gloucester Street, THE ROCKS – $X (REA NO Price)
6. 1809/183 Kent Street, SYDNEY – $525,000 (REA Price $525,000)
7. 303/420 Pitt Street, SYDNEY – $X (REA NO Price)
8. 2007/98 Gloucester Street, THE ROCKS – $X (REA NO Price)*
9. 2007/98 Gloucester Street, SYDNEY – $X (REA NO Price)*
10. 1409/168 Kent Street, SYDNEY – $X (REA No Price)*
11. 129 Harrington Street, SYDNEY – $X (REA NO Price)*
12. 129 Harrington Street, THE ROCKS – $X (REA NO Price)*

*I decided to cross reference the 12 properties against the Australian Property Monitors database and the properties marked with * appeared in APM. All of these properties have the price withheld in APM.

Ozhomevalue refer to this price as a Price Range but make no reference to what this Price Range figure means. If it is the sold price of the property, then vendors (along with agents) would be outraged and should have every right to demand the sold price removed immediately.

After further examination it appears that Homeguru.com.au another Realestate.com.au owned company is displaying exactly the same sold property data as what Ozhomevalue does in a similar Sales Reports. However, instead of displaying the price as ‘Price Range’ Homeguru.com.au simply has it displayed as Price.

1. As a follow up to BuyMyPlace.com.au being kicked off REA other agent assisted and private selling sites including Forsaleforlease, Myhomeisforsale and PropertyNow had also had their listings removed or threatened to be. I’ve heard from one of these companies that their listings have been reinstated to REA. They will remain there for a few months, during that time they will be closely scrutinised by REA and will have to prove they follow their Private Listing Policy
2. I was chatting to Geoff Luff – Director of realestate1 who provided an update on the legal proceedings against them:
   “Further to the proceedings issued against realEstate1 by the REA Group, we can report that Discovery is well under-way and mediation is scheduled for the 6th May 2011 at the offices of the REA Group’s Solicitors, Mallesons Stephen Jaques.”
   This hasn’t restricted their growth as since launching Australia wide in December 2010, realEstate1 has gained momentum and is now able to report that the site has increased their agent numbers by 30%. The agent database is now above 700 + agents and their traffic is between 45,000 to 50,000 per month.
3. American company CoreLogic Group who is currently a 40.22% shareholder in RPData (RPX) has launched a friendly takeover of RPData. The Board has approved the takeover on 20/4/2011 and it appears that yesterday shareholders have voted in favour of the move.
4. It’s rumoured that this week REA has sent a termination letter to RPData ending their data sharing relationship agreement. It’s thought that REA now believe they have enough sold data to go alone. They’re responsible for the online brands Homeguru.com.au and Ozhomevalue.com.au
5. A new look at Thehomepage with an overhaul of their interface. It’s very crisp, clean and fast which I believe are key factors for a real estate portal. Well done to Ben Stockdale and the team at Thehomepage as they’re definitely moving in the right direction.
6. Domain and REA both launched Android apps in the past two weeks offering android mobile phone browsers with the same enhanced experience which iPhone owners receive.
7. Last but by no means least important, is the planned $80m IPO by Onthehouse and the integration with real estate software and services companies PortPlus and Console.

Over the past decade I have investigated various methods of measuring online traffic for the different web sites I’ve managed, and no single measurement seems to bear up to scrutiny. In fact, most do a pretty good job of contradicting each other. Google Analytics? Smarter Stats? Nielsen? Hitwise? Alexa? Take your pick, and think of a number.

This problem was highlighted recently with the publication of Internet Advertising Bureau’s report ⁽¹⁾ showing that online ad spending in Australia has just topped the $2bn mark (doubling over the past 4 years). Another recent report⁽²⁾ predicted internet advertising will nearly double again over the next 4 years to leapfrog newspapers and TV to become the number one advertising medium in Australia.

The $2bn breaks down roughly to half in search/directories (so, mainly Google Adwords), a quarter in online classifieds (mainly real estate, cars and jobs) with the rest spent on general online display ads (skyscraper banners and the like).

The reports bemoaned the fact that although you could measure dollars spent on online advertising, measuring traffic to & from the ads was a guesstimate at best.

With this growing dominance of internet advertising, it would seem important that we can actually measure the precise number of visitors visit our web sites (and to which pages), something the internet was supposed to deliver. All businesses, even the smallest real estate agency office, should know how many people are coming to its online shop window.

Every time a web visitor clicks onto a web site, their visit should be recorded in the log files on the server (unless there’s some serious caching going on). Server-installed software (such as ‘Smarter Stats’) can interpret these and draw some pretty charts in real time, and send you daily/weekly reports by email so you can keep an eye on things.

Alternatively (and maybe additionally as a double check) install Google Analytics code into your web site code, and let Google measure the traffic, as most people do. And/or for those with high traffic sites wanting third party advertising dollars, Nielsen tags are supposed to do the same thing. Or sign up to Hitwise.

For those that can only really afford Google Analytics (it’s free to install), you may have checked the click thrus from, say, your enewsletter to the referrals from the same enewsletter to your web site (as measured by Analytics).

Or those that have paid for advertising on Google Adwords, or other places, may have tried to compare the reported click thrus with the referral traffic measured in the other direction. Shouldn’t every link one way be equal to the referral click measured the other way?

Of course none of these measurements tally up. Nothing like. I find variance by a factor of 2 or 3 times on all the above.

So who’s right? Are they all wrong? I’ve asked many online marketers and ebusiness people and no one seems to have the answer.

End Notes

1. IAB Australia’s Online Advertising Expenditure Report, compiled by PricewaterhouseCoopers,  Aug 2010

2. “Internet Advertising set to Dominate”, Lara Sinclair, The Australian, 2^nd Aug 2010

Photo – Gizmodo (Google StreetView guys)

I invited Graham to comment directly on B2 or have me post the explanation of events for them.

Here is the CEO’s response…

“We have read your blog entry about the CommBank Property Guide iPhone App (the “iPhone App”) and understand your concerns.  rpdata.com is contacting you directly as the error was a result of our code – neither Commonwealth Bank nor REA were responsible.  The data error to which you refer was in fact discovered by our team at rpdata.com and rectified immediately.

You would appreciate that the creativity and time necessary to develop this technology was extensive.  Inevitably bugs have been discovered and in this instance rpdata.com is extremely embarrassed that the data field from which the iPhone App sourced its data was cross referenced incorrectly.

While in this instance we had discovered the error ourselves your blog, and others like it, can provide us with useful feedback that allows us to improve our products including the protection of data.

rpdata.com is also the largest provider of property  data and analytics to the finance sector and have invested heavily in enterprise grade technology and security platforms to service this sector and the real estate industry providing benefits for all customers.

Please accept that we have the best of intentions, in that our goal is to provide the industry and our mutual clients with the very best in innovative tools necessary to enhance their prospects of securing and completing sales to the benefit of themselves and their customers.

Thank you for your honest feedback.”

Regards
Graham Mirabito
Chief Executive Officer

Whilst I acknowledge that Augmented Reality and the use of data across multiple platforms is the direction that our industry is heading, the Property Data debate will continue to be an extremely contentious issue throughout the real estate industry and as such, it is important that all data providers learn from this that whilst speed to market is important, getting the bugs out first is extremely vital.  (especially if the mistake reveals content that is normally hidden).

Prior to the launch a number of the major real estate franchise groups have demonstrated their support for the REI move by agreeing to upload their NSW property listings onto the RealEstateView.com.au portal.

It’s anticipated that other networks and lots of independent agents will also join in and show their support for a National Industry Based Real Estate Portal and National Sales Data System over the coming weeks.

The press release states:-

Partnering with the Real Estate Institute of New South Wales (REINSW), the launch in NSW marks the 5th state in which propertydata.com.au – the industry-owned data product and realestateVIEW.com.au property portal will be operating – making it one step closer to becoming a truly national portal.

Petra Sprekos, General Manager of propertyDATA.com.au & realestateVIEW.com.au says, “This launch marks a significant milestone in our plans to become a truly national data product and portal for our agents. As NSW is the largest property market in Australia, this expansion will allow us to continue to grow our data product and the portal to become one of the leading offerings in Australia.”

In addition Ms Sprekos said “With major agents such as Century 21, Laing & Simmons, LJ Hooker, Raine & Horne, First National and PRDnationwide already publishing to our portal, we are confident that uptake of realestateVIEW.com.au will be strong as agents are looking for more cost effective tools to run their business.”

propertyDATA.com.au & realestateVIEW.com.au are currently offering a $1800 discount off the yearly subscription fee to the first 100 subscribers through the foundation membership package.

For only $385 per month for metro agents and $275 per month for regional agents, foundation membership provides access to;

1)      PropertyDATA.com.au which provides latest sales and auction results collected via the REI call centre, access to the dynamic prospecting tool – known as GoProspecting and on the market data to get a well rounded view of the market.

2)      RealestateVIEW.com.au which provides a low cost advertising solution, free multi-loading to the large portals, free rental archive to benchmark rental values in the market and free website powering .

For more information on how propertyDATA.com.au & realestateVIEW.com.au can benefit your business – visit www.realestateVIEW.com.au/NSWLaunch. (after tonight’s event) or email sales@realestateview.com.au.

I had a brief discussion with Petra Sprekos yesterday and she was pleased to see the level of support that they’ve been receiving both from within the real estate industry and outside of the industry. Petra was also very happy to see that the visitor numbers to the site had already started climbing quite significantly.

Also, earlier today Kevin Turner of REUNCUT posted an “Exclusive interview with Enzo Raimondo of REIV and David Airey of REIA about the National Real Estate Industry Portal ~ http://ow.ly/1Syrl“.

During the interview REIA President, David Airey commented that “RealEstateView.com.au is a very important part of the national fabric of the real estate institutes. The success for example in Western Australia of REIWA.com.au is evidence that Real Estate Institute members will suppoort their industry owned portal and this expansion on the eastern seaboard by RealEstateView.com.au is just a great initiative”

David also went on to say, “I think industry members will support an industry owned portal rather than the commercial alternative and the results that RealEstateView.com.au can deliver will be just as good as anybody else and probably I’d like to think better in time.”

REIV CEO, Enzo Raimondo said “We’ve been doing a lot of work over the past 18 months on putting together a national platform, not jut as a portal for consumers to search for property but more importantly, the tools that agents need for managing those listings, the collection of data right round the country, so we can give it back to the agents to use for CMA’s, valuations or whatever else they’d like to do with it and also a Prospecting Tool.”

He also went on to say that, “We’ve definitely driven the cost of these services down and that’s our intent right around Australia.” (You can hear the rest of the interview here).

During the interview, Enzo also told Kevin that they are currently in talks with one of the data providers with regards to having them come on board as well. At this point in time Enzo couldn’t say who it is but with REINSW and EAC/Red Square recently parting company, I can only assume that the data operator in question would be PriceFinder (PDS Live).

Whilst it’s only speculation at this stage, I hope my hunch is right because, if so, this could exert some real pressure on RP Data’s current stronghold on data throughout the Australian real estate industry.

At tonight’s launch, I’m looking forward to catching up with Wayne Stewart, President of the REINSW to see if he can shed some light on what the REINSW’s proposed launch strategy is.

One thing is for sure, it’s going to be very interesting to see how it all unfolds.

While rising interest rates and house prices are concerns echoed by many home buyers, people still seem to be optimistic about successfully purchasing a home in 2010, although it may not be exactly what they had in mind when they originally started their property search.

How market demand and price increases are changing buyer decisions

With the market showing record growth over the 4^th quarter of 2009, there was no surprise that buyers were reviewing their budget to buy in 2010.   In fact a whopping 2 out of 3 people expected to have to increase their budget in order to find a suitable property in a suitable location in 2010, with 72% of these individuals expecting to raise their original budget by over $20,000.  Showing that potential buyers are at least prepared for what the year ahead may bring.

However it seems that increasing their budget is not the only consideration buyers are making.  When asked about what compromises buyers are making it seems many of them are considering other alternatives to their find a suitable home.  62% of those surveyed thought they may need to look ‘further out’ than they originally planned, whilst 55% of people would look for a property of smaller size and 51% would look for a home of lower quality than originally planned.

So while prices are still rising it seems potential buyers out there are prepared to make some sacrifices to get onto the property ladder.

Overall market data such as that provided by propertydata.com.au seems to point to the fact that the prime inner suburban properties will continue to be snapped up, but more humble buyers as shown from the realestateVIEW.com.au survey are willing to move ‘out’ to find something that suits.  They may not be getting a house that is as nice as they originally planned or the house as large as they might first have thought, but they know that there are ways to make this work.  It seems that demand may not slow; it may just change a little.

Taking inspiration from the success of Zillow and Trulia’s web site widgets, PriceFinder has released its own range of agent website tools for the Australian real estate industry.

According to Kent Lardner, Chief Operating Officer of PriceFinder :-

“Your web site visitors can now search for recent sales that match their property as well as view sales and growth charts for free. We have several new widgets now available as well as banners to enhance both the look and the functionality of a real estate agency website”

“The PriceFinder SalesMatch widget will allow you to find and map matching comparable sales for any property. Add this widget to auto display the most recent comparable sales for every listing on your website or simply provide a great value add-on for your website visitors.”

Widgets are an easy way to enhance your agency website and increase traffic by providing property related information to online property seekers who seem to have an unquenchable thirst for real estate statistics, comparable sales, demographics, etc.

Click Here to see these new widgets.

Future plans for PriceFinder Widgets:

“The address searched will be presented in a prospect report, printed directly from within your PriceFinder subscription platform in a future release. As part of our widget and overall product offering, PriceFinder will empower the agent with products that are currently being sold to consumers. Great for agents, not so good for businesses relying on consumer revenue.”

These PriceFinder Widgets will not only provide easy to access FREE reports to consumers but should also help real estate agent’s improve their website conversion. By providing an opt in facility for buyers, sellers, landlords, tenants, etc to recieve the FREE reports, the Widgets will inturn generate online leads around the clock for those agents using the PriceFinder system.