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Real estate agents are being accused of fueling the red-hot real estate market by manipulating so-called “estimated prices” on websites.
Consumer advocates caution this is a case of “buyer beware” and urge homeowners to do their homework first.
Edward and his wife have been looking for a house in Wellington for a couple of years “on and off”.
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“We start looking, and then prices skyrocket and we stop … until we do another round.”
In the last three years, residential property prices in the region have skyrocketed 51.4%, from $ 518,000 in 2017 to $ 785,000.
An avid follower of the homes.co.nz website, Edward was horrified to learn that it was a simple matter for agents to increase the estimated value of a property by raising their own appraisals.
“And very often it exceeds the market rate for that area.”
In a blog post, which left the website when it was recast, Marketing Manager Fiona D’Silva Moiyadi provides step-by-step instructions for modifying HomesEstimates.
Buyers expected the estimates from third-party websites to be unbiased, and allowing people with vested interests to influence them was distorting the market, Edward said.
“It makes me very angry.
“As soon as a person comes up with enough money to buy one of these horribly inflated places, everything else in the area costs the same.
“And it goes up and up and up and up.”
According to homes.co.nz, your HomesEstimates cannot be used in place of formal appraisals; they were “just a starting point.”
Chief data scientist Tom Lintern said the website used an algorithm to estimate market values based on the property’s physical attributes, assessable valuation and local sales histories.
However, he said the computers didn’t know everything, so they allowed sellers and realtors to add appraisals or appraisals to the mix.
“They have gone through the house and they know that it has a granite table, or that it is particularly deteriorated, so we take that into account.
“And that’s just an acknowledgment that who are we to say that our algorithm is better than an expert who has performed a physical inspection of the site?”
He did not believe the practice was inflating house prices.
“The market is going to talk, right? And the benefit of making use of as much information as possible is that everyone is as informed as they can be.”
Here is an example from the market speaking:
In June, a three-bedroom home in Newlands, Wellington had an estimated value on homes.co.nz of $ 675,000, below the Newlands median of $ 720,000.
When it hit the market in July, the estimate suddenly jumped over $ 200,000 to $ 885,000.
But after it sold for $ 790,000 in August, the HomesEstimate dropped $ 80,000, to just above the new market-high average of $ 775,000.
KIRK HARGREAVES / Stuff
In the past three years, residential property prices in the Wellington region have soared 51.4%, from $ 518,000 in 2017 to $ 785,000.
‘Our job is to get the best possible price’ – realtor
Collective First National agent Shannon Crawford, who listed the property, said even registered appraisers were having difficulty setting prices for properties in this market.
“It’s the hardest question in real estate because obviously what someone is willing to pay for a property, it all comes down to where does anyone see the value of that particular property.
“When it comes to the offers you get, from the bottom up there is sometimes a great variety.”
Hamish Timmins of Ray White Real Estate said the majority of the Wellington sales were made through closed bidding.
“And so, invariably, someone will pay before the market to enter the property, and then once you get some of those results, you establish where the market is going.
“So I feel partly responsible in terms of increasing prices, but that’s our job, our job is to get the best possible price.”
The state-owned Quotable Value Ltd also provides market valuations.
General Manager David Nagel said that, unlike some vendors, QV did not adjust estimates if agents or vendors asked for their accuracy.
“It’s an independent estimate and it can challenge the assumptions that go into that, like the floor area or the number of bedrooms, etc.
“But the actual estimate is just that: it is QV’s opinion of what the property is worth today and you can’t question that.”
Under the Real Estate Act, appraisals must fairly and accurately reflect market value.
Consumer New Zealand CEO Jon Duffy said in fairness to agents that it was difficult to anticipate where the asking price would land in such a complex environment.
“Some of these discrepancies could be explained by the heat in the market.
“But consumers need to be very cautious, and anything that is completely out of place could be the subject of a complaint to the Commerce Commission or the Authority of Realtors.”
However, that is of little help to people like Edward who cannot even stand on the property ladder.
“A lot of people are making a lot of money from this and it is leaving a lot of people out in the cold, people who should be able to afford a house.
“It’s not that we have a low income. I earn a decent salary, my wife earns a decent salary, we have two children … we can certainly afford a mortgage, we just can’t find anything that’s affordable.
“It’s crazy.”
Meanwhile, new research from Statistics New Zealand this week showed that homeownership rates have fallen to their lowest level in 70 years.
