Spotting Mispriced Properties

It's like finding a First Class airline ticket for less than the price of Economy

May 2016

Oversights in pricing a property could mean a bargain for a shrewd investor

We have all experienced the joy of spotting some item that was mispriced. Airline tickets, rental cars, or perhaps an item in the store that was hidden in the back of the rack that was reduced. What if we could spot these opportunities automatically?

At Propcision, we do just that. We process varying combinations of attributes of a property to detect mispricing. With the increasing popularity of off-plan investing and resales, investors should be aware of pricing opportunities. Let's explore one simple version of mispricing in new builds.

New Builds and Spotting the Perfect Combination

Typically, the higher the floors, the higher the price in new build developments with lifts. (See more information on opportunities for lower ground floors in recent article published 13 Jan 2017 - Distressed Market Brings Underground Deals to Surface) By using this information, the Propcision algorithms not only detect price gaps (jumps) in the asking price for a top view of the landscape but also possible pricing inconsistences of particular flats.

To illustrate this example, let's look at a 1 bedroom, 495 sq ft unit located in Sky Gardens in the Battersea Power Station Regeneration area.

The Sky Gardens development is 34 floors with 25 of the 34 floors offering four 495sqft apartments. Therefore, there are 100 apartments in Sky Gardens that offer 495 sqft of space - each having the same layout but a different view of the landscape. We numbered them from 1 to 4 for ease of discussion. (Click here for more info on dataset.)

As can be seen in the chart above, the two most desirable aspects, numbers 3 and 4, show a clear increase in the average price of the units as the floor level approaches the top of the building. Pretty normal stuff here as this is common and what we expect to see in London's new builds.

From Floor 16, a slight increase in price starts to be detectable. A clear jump in prices occurs after Floor 26. A buyer pays, roughly, £250,000 more for the same size flat with the same aspect but on a higher floor.

Now, lets look at the other two aspects, 1 and 2. Both these aspects are similarly priced however may be perceived as slightly less desirable due to not overlooking the River.

In theory, we expect to see the same smooth acceleration of price as the previous example. However, in this example, there is a pricing inconsistency. Notice the price of Floor 26 versus Floor 31. (Links to the Rightmove sales listings of the flats are included at the bottom of this article.)

Here, we see two things

1) If we compare the first chart with the second, the price of the 31st Floor should be in line with the price of the 32nd and 33rd Floors - that is, roughly £800,000 asking price - however, its listed for £700,000. Thats a savings of £100,000! This could be a bargain and worth flagging.

2) The price of the flat on the 26th floor should be slightly higher than the lower floors but not as much as the upper floors. In theory, it should be priced around £700,000 however, instead, its listed for £800,000. Thats a £100,000 more than it should be. Possibly not a good deal.

Admittedly, this is a pretty simple example, but it illustrates a point about detection of pricing. In reality, Propcision algorithms run daily detecting more complex mispricing with square footage and location that are not based on new builds but general neighborhoods.

Pricing inconsistences could be mistakes - one of the most common being that the estate agent may have entered the wrong details. Perhaps, in the illustration above, the sales detail of the flats on Floor 26 and Floor 31 are "criss-crossed" in the listing. Or, alternatively, perhaps the owner of the flat on Floor 31 is motivated to sell. This is the reason property investors conduct manual research based on the pool of flagged properties.

To summarise:

  • Premium prices for upper floors are common amongst all developments and reflects desirability of upper levels.
  • Off-plan investors can use this information to compare pricing amongst floors and aspects.
  • Pricing differences may be wider between certain floors and narrower between others. (Some pricing gaps could be justified by blocked views or low vantage points.)
  • Pricing differences between aspects may be wider and narrower between floors. (Charts above demonstrate a narrower pricing gap between aspects on lower floors.)
  • Analysing square footage, floors, location and other parameters, algorithms automatically detect trends or inconsistences in the market.
  • Inconsistences may be explainable and justifiable however there are times when there has been a mispricing that property investors target.

See for yourself...(before the prices are corrected in Rightmove...)

Rightmove URL
First Listed
Price per SQFT
Floor 26
Aspect 1
Floor 31
Aspect 2
Floor 32
Aspect 2
Floor 33
Aspect 2

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More information

How we organised our dataset to arrive at the above findings.

The Propcision algorithms classify each apartment by floor and aspect (view) so that the data is consistent (or normalised, in statistical terms). Then, the results are plotted.

As mentioned, according to Garton Jones website the Sky Gardens development is 34 floors with 25 of the 34 floors offering four 495sqft apartments. Therefore, there are 100 apartments in Sky Gardens that offer 495 sqft of space - each having the same layout but a different view of the landscape.

There were 4 different views as illustrated in the chart to the side. We numbered them from 1 to 4. Aspects 1 and 2 were quite similar offering views of the landscape and Aspects 3 and 4 offering views of the River. Aspects 3 and 4 were more desirable and priced accordingly.

As with most new builds, apartments of the same size and layout sit on top of one another with the only difference being the floor. (In some cases, lower floors offer views blocked by other buildings thus are less desirable and therefore cheaper than unrestricted views.)