The Property

The property at 22B Koraha Street is a beautiful, newly constructed two-storied villa with a floor area of 204sqm sitting on 324sqm of freehold land. The house consists of three double bedrooms, two and a half bathrooms, a double garage, and a large separate family room that can act as a fourth bedroom if needed.

The kitchen features custom-made Kauri cabinetry with intricate leadlight glass cabinet doors. The flooring throughout is made from recycled 500-year-old Rimu, while the decking is made from the highest grade of kwila timber. There are Santé Fe shutters installed throughout, with beautiful panelling in the communal areas of the home. The interior and exterior were painted with five coats of Aalto paint and will not need a touch up for a very long time. The build was completed in March 2020 and the property has never been lived in. The home also comes with a 10-year builders’ guarantee from the renowned builders at Villa Homes (www.villahomes.co.nz).

The Sell

Villas represent an incredibly important part of Auckland’s architectural heritage and identity. Villas are to Auckland what loft apartments are to New York or mid-century modern homes are to Palm Springs. What was once a democratic and affordable building design, has become a benchmark for timeless architectural beauty.

It is for this reason that such a concerted effort has been made by the wider public to protect and restore old villas at all costs. However, despite their external beauty, an old villa is like an old classic car – it looks beautiful on the outside, but there are always problems under the hood. Old villas are notoriously draughty, damp, and require constant maintenance. However, as is the case with classic cars, it’s hard to let villas go. There’s just something about them. They possess a quality and character that doesn’t exist in most modern homes or new builds.

Villa Homes

So, why don’t we build new villas? As land prices in Auckland have continued to rise, building quality in many new builds and developments has fallen to keep properties at affordable levels. As a result of this trend, the building industry has regeared itself to focus on cost-cutting and efficiency, all at the expense of true craftsmanship. The old villas that exist in Auckland were designed and built by craftsmen. They belong to a bygone era where quality and consistency were celebrated above all else. That is why so many villas are still standing more than 100 years after they were first built.

Villa Homes is trying to reverse this trend, one villa at a time. With over 30 years’ experience building and renovating villas throughout New Zealand, their attention to detail and workmanship is unparalleled. Villa Homes are one of the only building companies in New Zealand with the experience and expertise to create brand-new, authentic villas. They use the same methods and materials that were first used to create Auckland’s original villas. A home built by Villa Homes retains all of the external beauty of an old villa with all of the modern comforts that you would expect from a new build.

Scarcity and Quality

When marketing a new villa, like 22B Koraha Street, we made the decision to focus on two different areas: the quality of the build and just how rare it is to find a brand-new villa, without having to build it yourself. Brand-new villas almost never come onto the market (unless they are built by Villa Homes). Scarcity is an important driver of human impulse. The quality of the build was obvious. Every single person who walked through the door commented on the quality of the workmanship. The challenge for an agent is getting as many potential buyers as possible to experience it for themselves. This was a property where photos didn’t do it justice.

By focusing on build quality and how rare it was to find a brand-new villa, we were able to shift attention away from some of the more challenging aspects of marketing the property. The first of those aspects is land size. In central Auckland, most buyers expect at least 400sqm of land. The attachment to land size is both historical and logical. It is historical, in that most properties in the region are 400sqm or more because that was the minimum subdividable land size for a long time. It is logical because most capital gains come from land value increases. A smaller land size means less capital gains over time.

Land Size

Remuera is an old money suburb. Land is valuable because of the grandeur of properties, size of sections, and because of the suburb’s proximity to the city. In 2016, the new Unitary Plan was released, which allows for 300sqm subdivisions in Mixed Housing Urban Zones. This zone covers much of Remuera. In a suburb filled with unused land in the form of tennis courts and oversized back-yards, there was obviously going to be a lot of interest in the new allowances. A 600sqm property in the right street could, for instance, be divided into two 300sqm sections, whereas in the past it had to be kept as a single 600sqm lot. Given that capital gains from property value increases are how most New Zealanders generate wealth, it will take Aucklanders some time to get used to the idea of smaller sections.

The only thing that can make up for a smaller parcel of land is a better quality of build. That was the situation with 22B Koraha Street. While the land size was only 324sqm, the build was of such a high quality that it more than made up for the fact that the section doesn’t quite reach the minimum 400sqm that many buyers expect.

Double Grammer Zone

Another issue with the property is that it is not in “Grammar Zone”. One of the many reasons houses in Epsom, Remuera, and Parnell are so valuable is because much of the area is covered by zoning for some of the most desirable public schools in the country, like Epsom Girls Grammar and Auckland Grammar. Buyers place a premium on sending their children to these schools. Whether these schools are worth it is open for debate. In zone properties are typically worth several hundred thousand dollars more than properties that are immediately outside of this zone.

The reality is that while buyers in Ponsonby do not care that there are not as many highly regarded schools in the area, buyers in Remuera expect to be in the Grammar Zone. As there was nothing we could do to change these zones, we instead encouraged buyers to focus on the proximity of the property to some of the best private schools in the country, like Dio, St Cuthbert’s College, King’s Prep, and King’s College. The $200,000 premium that they would have otherwise spent buying a property in zone represents that approximate cost of sending a child to a private school in the area until year 13. This is a home for someone who recognises that they are getting a good deal because it is outside of the grammar zone and don’t see it as a negative.

Buyer Profile

We made the decision early-on to focus on downsizers as the target market for the home. Families that care about the school zone are unlikely to care about the quality of the build. These families would take any new build, so long as it is in the right school zone. There was also the additional issue of the layout of the home, which could have turned away young families. The additional bedrooms were on a lower floor, while the master bedroom was on the second floor. This makes it unsuitable for families with younger children, but potentially perfect for teenagers. However, unfortunately because the property was not in theGrammar Zone, it would be less desirable for families with teenage boys.

The Method

We chose to sell the property by negotiation. There were several reasons for this. As is the case with many new builds, the CV on the property did not accurately reflect the property’s true value. Council valuations have very little to do with the actual value of a property and more to do with how much the Council wants a homeowner to pay in rates for the privilege of living at a particular property.

CV and Price

Buyers in Auckland are extremely attached to the CV as a way of valuing property. The average person isn’t going to know how much a property is worth just by looking at it, in the same way that a good agent may be able to. After all, buyers do not have access to the same data and information that agents are privy to or have the same day-to-day experiences in real estate. In light of the information asymmetry, it makes sense that the CV is the first thing most buyers reference when considering a property.

The challenge for agents is distracting buyers away from the CV when it does not accurately reflect the value of a property, or bringing it to a buyer’s attention when a property may be worth less than the Council’s valuation. For instance, when a property has a CV of $1.7m but is worth $2.3m, it is important to shift the focus away from the CV and focus instead on giving buyers enough information to understand how to accurately value the property. Conversely, if the CV is $1.7m and the property is worth $1.4m, agents often promote the CV as the true value of the property. Unfortunately, many agents take advantage of the fact that buyers are more likely to believe that a property is worth the CV when it isn’t, than believe that a property is worth more than the CV when it is.

New Build Costs

So, why would there be a large difference between the CV and a property’s value? There are several reasons for this, but a common reason relates to build cost. If you have land that is worth $1m and you build a 4-bedroom, 3-bathroom home on the property with a floor area of 220sqm for $600,000, Auckland Council might value the building at $700,000 for rates purposes. Now, if you built a higher quality 4-bedroom, 3-bathroom, 220sqm house but spent $1.5m instead of $600,000, the Council would likely still value the building at $700,000. Increasing the build cost doesn’t necessarily correspond to an increase in the way the Council values a property. So, in the first situation, you have spent $1.6m and have a CV of $1.7m and in the second situation you have spent $2.5m and still have a CV of $1.7m. Just going off the CVs of both properties, buyers may think that both properties are worth the same amount. In reality, the second property is likely worth significantly more than the first.

This value divergence is very common with new builds and is exactly what happened with 22B Koraha Street. While the build and earth works were worth $1.2m and the land was independently valued at another $1.2m, the CV was just $1.7m. Knowing that many buyers would be anchored to the CV, we chose to educate buyers by helping them understand the value of the land and the replacement value of the house. This information helped buyers make sense of the price guide that we provided. Without this information, buyers would not have offered close to the true value of the home.

Negotiation v Auctions

While a sale by negotiation typically takes longer than other sale methods, it is the best approach for most new builds when buyers need to be educated about a property. In an ideal world, a person would walk into a house and fall in love and know exactly what the property is worth. Even though almost all buyers do their homework, most will have no idea how to accurately value a property. How would they? Most buyers go through this process five or six times in a lifetime. Since buyers in this instance needed to be educated about how to value the property, it is unlikely that an auction would have come close to getting the vendor what the property deserved.

Auctions are the most popular method of sale in Auckland and have been for some time. Auctions are suitable when a property is likely to generate a lot of interest from buyers who may be willing to compete with each other to be the new owner. Auctions sometimes work, but they oftentimes don’t. Everyone hears about the successes, but agencies never publicise failures. Large agencies use auctions for two principal reasons that have nothing to do with getting vendors the best possible sale price. The first reason is that auctions lead to a higher clearance or sale rate. By the time an auction takes place, an agent is likely to have spent all of the marketing money in the hopes of getting enough interested bidders to attend. What agents know is that if the reserve isn’t reached, a vendor will be much more open to negotiating. The agent will ask the vendor, “Do really want to spend another $10,000 on marketing and waste another 6 weeks on the market, only for it not to sell at auction a second time?” Agents are able to blame the market for the auction failure and place vendors in an incredibly difficult position. Many vendors will capitulate and follow the advice of an agent. This is where incentives do not align. Even if the vendor gets $100,000 less, the agency only cares about getting a fast sale and a fast commission.

The second reason large agencies favour auctions is because it keeps large agencies relevant. Without auctions, large agencies bring almost nothing to the table. The benefit of having a large agency is that, when it comes to auctions, they are able to achieve economies of scale. While it varies from agency to agency, auctioneers are typically paid an appearance fee and may also receive a bonus, based on the number of properties cleared in a given auction. For instance, if an agency schedules eight auctions to take place on a single evening, the agency only needs to pay the auctioneer a single fee (as well as agreed bonuses), which could allow the agency to sell all eight properties in a single evening. This is obviously good for the agency, but it isn’t necessarily good for vendors who may not be getting the highest price and who can be pressured into a sale. If large agencies could only run open-ended sale by negotiation campaigns, clearance rates would slow but final sale rates would in many cases be higher. However, it’s a trade-off for vendors too. Most vendors would prefer the certainty of knowing the likely sale date and accept that they may not be achieving the best result by going to auction. This gives them more certainty when purchasing their next property.

In this instance, we knew what the property was worth and were not willing to force through a sale that did not get the best sale price for the vendor. The vendor was also not in a rush to sell. Achieving the best sale price has nothing to do with the market and everything to do with finding the right buyer. With a sale by negotiation, there only needs to be one interested party. The challenge is finding that party and getting them to pay what the property is worth.

The Marketing

When selling a house by negotiation, marketing campaigns are open-ended. Unlike other methods of sale, like auctions, deadline sales, or tenders, which have a fixed end date, there is much less certainty. This is important to keep in mind when developing a marketing strategy.

Many agents adopt the strategy of spending an entire marketing budget in the first few weeks of a campaign in the hopes of achieving a quick sale. The logic is that if you flood the market with advertising material, there is a greater chance of finding a buyer. While situations vary, this is in many cases unnecessarily risky and an example of an agent not internalising the marketing spend or acting in the best interests of a vendor. With this sale method, marketing money should be spread out and managed so money is always available in the likely event that the marketing strategy and/or channels need to be changed.

Marketing Costs

The marketing budget we requested was just $2,900, which is about one third of what most agents would request for a property that is priced over $2m. While it makes more sense for an agent to pay for marketing costs given that they stand to receive a commission once the property is sold and the marketing is a chance for them to market themselves and their agency, it is important that vendors have skin in the game. If vendors didn’t have to pay for marketing costs, there would be nothing stopping them from hopping from agent to agent or refusing to sell when a fair offer is presented. This would dilute incentives for agents and ultimately lower the overall quality of service provided to vendors.

However, at some point, it became industry standard to expect vendors to pay $10,000 to market a property. Even if a vendor has a $3m property, $10,000 is not an insignificant out-of-pocket expense when there is no guarantee of a sale. We request the minimum amount that keeps vendors motivated and invested in the outcome. If we go over that amount, we incur any extra costs ourselves. We never ask a vendor for more money.

(Virtual) Staging

Since the property has only been completed a few months before it went on the market, it was completely unfurnished. In almost every other situation, the best thing an agent can do in this situation is get the property staged. Buyers have almost no imagination. They need to see a bed in a room to know that it is a bedroom. They need to see plates on a table to know that you eat at a dining table. They need to see towels in a bathroom to understand that that is where you bathe.

Staging is expensive. While prices vary, for good staging in an average three-bedroom, two-bathroom home, the price is around NZ$3,000 a month. A property that is on the market for four months will incur approximately $12,000 in staging fees. If any of the staging furniture or props are damaged or stolen, there are additional fees on top of this amount. However, when buyers can see how a property would be used, they can imagine themselves in that space. A few thousand dollars is a small price to pay when it could potentially add on hundreds of thousands of dollars to the final sale price. However, agents again seem to forget that this is an out-of-pocket expense. Most people do not feel comfortable committing to a staging spend when there is no guarantee that it will sell a property, let alone improve the final sale price.

After consulting with the vendor, we made the decision to virtually stage the property rather than opting for a full staging. This decision was made in light of the uncertainty presented by the COVID-19 pandemic and the fact that we were unsure of how buyers were going to react at the time. It was also made because we didn’t want anything to distract buyers from the quality and the finishing of the build.

Virtual staging offers many of the benefits of real staging at a fraction of the price. It involves going through a property and taking pictures and then later adding virtual furniture and accessories to each room. With a good virtual stager, most buyers will be unable to tell that the pictures are rendered. So, instead of spending $3,000-$4,000 a month on staging, there might be a one-off cost of $500 for 10 pictures that you can use over the entire length of the campaign.

Virtual staging isn’t right for every unfurnished property. While the costs are lower, many buyers prefer a staged home and may not respond to virtual staging. However, virtual staging is completely under-utilised in real estate. Even if a room is full furnished, it is possible to add or remove things that could have a huge impact on how a buyer sees and values a property.

Online Advertising

We primarily marketed the property on Trade Me, Homes.co.nz, and Hougarden. Trade Me is by far the most effective tool for marketing residential property in New Zealand. The platform is reasonably priced and provides great access to potential buyers and good statistics that can be used as social proof for vendors. The other two methods are less effective in general, but are both important for different reasons. Homes.co.nz has a maps feature that provides a good discovery tool for potential buyers who may not have otherwise looked in the area. Hougarden is a good way to access Chinese buyers who often prefer brand new homes. While this property was unlikely to appeal to Chinese buyers for several reasons, we felt that it was important to cover all bases.

Social Media

On the social media front, we used Facebook and Instagram as the primary marketing tools. We have a huge amount of experience with social media marketing, and used indirect copy ads and retargeting to funnel potential buyers to the Trade Me listing and our website. One of the benefits of having a small agency is that every website visitor was directly exposed to each listing, without having to sift through hundreds of others. As a result, our bounce rate on the home page of the website was extremely low — people don’t leave as soon as they come to the website.

Large agencies cannot compete with the level of online discoverability that we are able to offer individual listings. Our physical marketing strategies all tied into our social media campaign. As an example of our thinking, we used our lawn signs to create ads promoting the agency with the end goal of driving traffic to the listing. This results in much more engaged and inquisitive buyer leads than conventional ads focused solely on property features. We also used billboard marketing at the same time to promote the agency. The billboards themselves contained cold triggers and were therefore not used to drive traffic to the website. Instead, we used pictures of the billboard copy as social proof to validate the agency and again drive interest in the agency website and listing. As a result of the marketing campaign, we had on average 400 visitors each day to the website and Trade Me listing. Over 95% of those leads on the website went to the listing page for the property.

We also used several other digital marketing and direct copy strategies to market the property. We will write about these strategies in a follow up post in the next few weeks’ — make sure you are subscribed to our Fast Property newsletter.

The Campaign

Despite the fact that we started the marketing campaign just as New Zealand was coming out of a strict 7 week COVID-19 lockdown, the listing proved to be very popular. The lockdown didn’t seem to have any impact on the responsiveness of buyers or their valuations of the property.

Open homes were run each weekend with private inspections taking place during the week. There were 88 inspections in total with 11 groups coming through twice and 7 groups coming through three or more times. We received over 100 separate requests for a price guide and took calls from over 40 individuals looking for more information about the property.

Our campaign received over 20,000 views on the Trade Me listing, which is 5x greater than other listings at the time, which averaged at just 4000 views over a similar campaign length. Our social media marketing reached 35,000 potential buyers in the central Auckland region with over 15,000 engagements on our posts. Our cost per engagement was extremely good at less than NZ$0.20.

The Result

The property was sold in July 2020 for 30% above CV. The new owners are incredibly lucky. No matter what other changes take place in Auckland, this is a home that will still be standing in 100 years’ time. No matter how high the quality, the same can’t be said for many new builds these days

We are truly grateful for the opportunity to market and sell a home built by Villa Homes. It was, without question, the highest quality build and finishing we have seen in a property. If you are thinking about building, we cannot recommend Villa Homes more highly.

You can find out more on their website www.villahomes.co.nz or you can contact us on 022 434 4991 and we will put you in touch with the right person at Villa Homes.

If you would like more information about the property or Villa Homes, we are always here to help: 022 434 4991 or hello@dayagibb.co.nz.