How often have I heard people say ‘I will only look at the figures – numbers don’t lie. But they can and often do – figures are brazenly manipulated to show a particular point of view. Disguised as content and coupled by our apathy to do our own calculations, they are a lethal weapon in the sales process.
Like every other Australian, I am a property market nut. I scan my phone on Sunday evening to see the weekend’s auction clearance rate – is our property market hot or not!
I am going to use the recent property market stats as an example of data manipulation – not because the property industry is alone in its selective presentation, but because it is something we are all familiar with.
7th April auction clearance rates were reported as 66%. Let’s take a closer look at this figure. I have used detail provided by Core Logic, a comprehensive source of property data, insights and analytics used by industry professionals.
Here you will see that the 66% clearance rate is out of the 668 results available and not the 954 scheduled auctions.
So what happened to the 286 properties that weren’t reported?
According to Louis Christopher from SQM Research, which provides property analysis to financial institutions, 70-75% of unreported auctions are failed auctions.
From my understanding, agents obviously have an incentive to report those property auctions that are successful as that impacts the figures they are presenting to potential clients.
If we assume, as Christopher suggests, that 70% of the unreported auctions did not achieve a sale, then the true clearance rate was 55% - well below the reported 66%.
If, we then go a little deeper into our analysis, according to Lauren Croxford, Rose and Jones, a well-respected buyer’s agent, we shouldn’t even include properties sold prior to auction in the clearance rate. “The auction is system is dependent on creating competitive tension with multiple parties competing for the property in a public forum. If there is insufficient interested parties to compete at auction the agent will work with the strongest buyer because at auction, they risk getting less. If we had to take out the number of properties sold prior to auction the clearance rate would drop to 37%.
If presented differently auction clearance rates would tell a very different story.
While I have used the property market as an example, the investment world is perhaps even rifer with this behaviour. Things to watch out for are lower fees on the gains yet higher fees on the full amount invested; tax paid investments; taxes paid annually rather than when the asset is sold - the list is literally endless. The more complex the product, the more it is open to manipulation.
What can we conclude from this?
Not that the property market is going to crash, as using an isolated figure at a single point in time to make such a bold prediction would be just as foolish.
Rather, my point is that numbers can manipulate just as easily as words. We have been schooled in detecting sales talk, but not number talk. Without a real understanding of how the numbers are created, you are truly a lamb to the slaughter.
Whether you are looking to invest in property, shares or managed funds, knowledgeable advice from an honest source is essential.
(Let’s just hope that Cancer Research does not abide by the same funky principles.)
For further detail, to discuss your own situation or further scoop on bad data, get in touch with Marisa on 0416538227 or firstname.lastname@example.org