W

hile listings continue to rise, property prices and sales are crashing across the country. And some real estate agents are using $1 reserve auctions to lure buyers.

Median prices in Auckland have dipped below $1 million for the first time since February.

The average asking price across the country on realestate.co.nz has fallen for five consecutive months, to $816,797 in July from $927,312 in February – a drop of 11.9 per cent or $110,515.

Stock on real estate agency Barfoot & Thompson’s books is at the highest level for July since 2010.

On realestate.co.nz the total number of homes for sale in July was up 32.3 per cent year-on-year to 30,556 properties for sale, while new listings received in July rose 31.3 per cent, breaking a seven-year trend of low listing levels in July.

CoreLogic’s chief property economist, Kelvin Davidson, says while the choice of property available to buy is already at a high level, the shorter bright-line test could yet push it up further.

And as more listings come to a well-stocked market, those who are in a position to buy are taking their time. This has been illustrated in data over the past 18 months, showing the switch in power from vendor to buyer.

In a market where there are ever rising listings and tough competition to get a sale, looking at alternative ways to market and sell a property is becoming a necessity.

TEMPTING MOVE

And for ascendant buyers the chance to buy a super cheap house for $1 can be tempting, particularly as bolder vendors are taking advantage of $1 reserve auctions.

Trade Me says it has seen a rise in these types of auctions advertised on its site.

Tom Rawson, Ray White’s Manukau director/branch manager, says their day has come as traditional marketing is not cutting it for some vendors.

His company is an enthusiastic fan of the $1 reserve auction. “We’ve probably done more $1 auctions than anybody else. They show a vendor is coming to the market, has set a date, a time, and is going to let the property go for as much as they can get at the time.”

Rawson says the market gets “excited” about that, particularly if the property is a deceased estate or mortgagee auction. “It takes the question out of the buyers’ mind about where the vendor’s expectation is.”

Recently, four prestige homes, owned by Northland’s Carrington Estate, sold under the hammer for a total of $2.83 million after being marketed as $1 reserve auctions each by Ray White Kaitaia.

The four homes had languished mostly unused since they were built eight years ago.

Three of the four buyers had not even visited the properties. Forty buyers were registered to bid on all four properties. They went mainly to investors to be used as a holiday home or rented as Airbnb.

Rawson says it shows what the market is looking for. “We are not testing the market and wasting buyers’ time. The buyer knows the vendor is ready to go.”

Looking at what vendors could have got through traditional marketing versus what they got on auction day and averaging it out across all the $1 reserve auctions, it’s well above what they should have achieved, due to increased competition those auctions create, he says.

“And the reason for that is people go to open homes, take their family and friends, look at the property and then know that on the day they’ve got a chance of buying it. They’re not going to get their offer declined or their bid rejected. Whoever wins, wins. Buyers appreciate the genuine intent to sell.”

New Builds

For sellers who favour traditional marketing, Rawson says the market is moving, but not as quickly. “There are investors, first home buyers and movers in the market, but not developers.”

There is an over-supply of newly-built properties as elevated consenting and a large pipeline of building work over the past few years has resulted in many properties coming to the market at the same time, which are proving a bit harder to sell.

“A massive amount has come on to the market this year and the prices needed are a bit above the existing market, so owners and developers are holding out, which keeps those properties on the market longer.”

In Wellington, the influx of stock has meant a 50 per cent increase in listings since the start of the year.

Lowe & Co founder and managing director, Craig Lowe, says it’s the biggest backlog of stock he has experienced. “It is extreme, but paradoxically a lot more houses have started turning over, although prices have dropped. A lot of sellers came out of the woodwork and most of them are also rebuying into the same market.”

His company has had a 40 per cent drop in sales this year. Wellington’s long-term average yearly sales over the past 24 years has been 4,000 transactions a year. Last financial year, it was 2,500.

Lowe puts much of this down to the gap between what vendors want and buyers are willing to pay.

“Even if people bought 10 years ago, they feel a distinct sense of potential loss if they sell lower than what they thought the price was at the peak of the market. It’s not a real loss, but the human brain weighs losses greater than it values gains. And even though the seller might be sitting on a doubling of value since they bought the property, they are averse to accepting a subconscious loss that isn’t even a real loss.”

Lowe says that is a huge part of what drives the market at this stage in the cycle. And the reality is it doesn’t help a seller because the price is the price and people should be making their decisions on what they want to do, their reasons for a sale and what they are going to do with the money.

Interest Rates

While an eventual drop in interest rates will be positive, it will not be as much as people are expecting. “People assume there’s going to be some massive decline in interest rates and then suddenly there’s going to be capital gains. That certainly hasn’t been my experience in the past.”

Smart house buyers, says Lowe, are looking for quality. High-end homes in the capital are scarce and sell well in any market.

“It’s not like Auckland or Queenstown where there is a huge supply of high-end homes that outperform the market. We’ve had some great sales of beautifully done high-end homes, but the flight to quality is right across Wellington’s market.”

On the other hand, a renovation property is toast. “We’ve had a double whammy – inflation has sent building costs soaring by 50 per cent in the past five years, and property prices have dropped 25 per cent in the past two years. Buyers are aware of that, and the equation doesn’t work to buy a property and renovate.”

So, what can sellers do to make their property look as well presented as they possibly can with the least amount of capital?

“If there is a renovation bucket and presentation bucket and spending lands on renovation, don’t do it. If it lands on presentation then consider doing it – gardens, house washing, painting, new carpet at the maximum, and then staging.”

Then, says Lowe, the property needs to be priced well and relative to what is on the market and not shy away from saying in the marketing it might need work to make sure buyers’ expectations are managed well.

The process of marketing is a relative one, he says.

“And this is probably the hardest insight to see unless you’re standing in the shoes of a real estate agent. But when you put your house on the market, you are ultimately competing.

“You’re not marketing in isolation; you’re marketing it against every other property that’s on the market.

“All a buyer is doing is going from one property to the next and just comparing them. And so, if your house isn’t selling, it’s probably price, or it could be a messy tenant, but as long as it’s promoted well and presented well and there’s nothing different, then 95 times out of 100 it will sell.”

Sellers need to do as much as they can in terms of videos, social media exposure and buying the best packages they can get with the biggest online portals, such as Trade Me.

“It’s not like there’s a marketing campaign that has some silver bullet that no-one else has.

“It’s just effective to go bigger and better in the places where all the buyers are looking because they want all the opportunities as well.”

Some Of The Hurdles To Selling

For sellers who favour traditional marketing, Rawson says one of the biggest hurdles for getting a sale over the line is consenting issues.

Rawson says that in his area, some houses have illegal works, such as an extra toilet, enclosed sunroom, veranda or carport turned into bedrooms or extra living space or a pool, that are not consented.

“Often homeowners want the value of what is on site, even if it is not legal,” he says. “If it is a two-bedroom home that is being used as a three, four, or five-bedroom house, the owner is still going to get only a two-bedroom price for it, even though they will be expecting more. Factoring in illegal works into expectations should be considered as banks can’t finance something that is not legal.”

Homeowners need to either discount the price because of the illegal works, remove them, or get them retrospectively consented, which is not easy if they are not the original consent holder. In some cases, it’s impossible because sign-off is needed from the original consent holder, Rawson says.

“Retrospective consenting is perceived to be hard and costly, but the reality is at the transaction stage it’s more costly not to have the consent. It’s a bit of a false economy not to get it done. Sellers don’t really save themselves time and money by not getting the consent.”

Another impediment can be a tenanted property. If the property is tenanted, for example on a three-year fixed term, Rawson says only an investor can buy, so selling towards the end of the tenancy is the best idea as it then opens to a homeowner as well.

“Offering the property to the tenant first is critical and occasionally they are in a position to buy. It also helps make sure they don’t feel discredited in the sale process.”

Making sure there is access for open homes and viewings – one during the week and one at the weekend – is critical and offering tenants discounted rent for that time is the best and right thing to do, Rawson says.