Please read part one of the article “What’s in the Clearance Rate?” here.
Another scenario which needs to be understood is the various decisions made during the auction. When there is not much ‘heated’ competition, the vendor ‘may’ decide – (and relay such instructions to the agent) – to alter their reserve price thereby encouraging the agent to pass the property in because they feel a higher figure can be negotiated. After all – without this additional negotiation, the vendor will only obtain a figure one bid higher than the under-bidder. The vendor is perfectly entitled to do this.
Obviously the attraction of listing a property for auction is the hope heated competition will push the price over and above expectation. An auction campaign is generally a short four week process – typically three weeks of marketing with the auction taking place during the fourth week. It often results in a successful sale because by all intents & purposes, it puts pressure on buyers to act within a short time frame. Also – under auction conditions – once the property is sold, the sticker goes up! There is no cooling off period, no subject to finance – the buyers must do their due diligence prior to auction day.
However when vendors list their property in this way, they also understand that the auction is essentially a 3 staged process during which the property can sell prior to auction, under the hammer, or post auction. Those properties that fail to sell under the hammer, or via post auction negotiation, generally sell within two weeks as a direct result of marketing. As any selling agent will tell you – once an auction has failed, there are usually numerous calls from buyers wanting to know the ‘reserve’ price assuming that the ‘failed’ day of auction will result in added pressure for the vendor to sell and reduce price expectation.
So how important is it to monitor the clearance rate? When the RBA assess house price movements they take into account a broad range of data collected from suppliers such as RP Data-Rismark, APM and the ABS. They also monitor monthly movements and clearance figures. If there is any doubt over the accuracy of reported clearance figures – or whether there should be some differentiation between properties that sell under the hammer, compared to those that sell via negotiation, it’s worth noting the graph on the RBA website which shows a very close correlation between month to month price growth, and clearance rates.
(http://www.rba.gov.au/publications/smp/2010/may/graphs/graph-39.html)
The fact that both clearance figures are low, and overall turnover is low, indicates perfect conditions for those wanting to step in. However, caution prevents most buyers acting against the herd mentality and purchasing whilst there is apparent ‘doom and gloom’ flattening expectation and providing better buying conditions.
This is understandable – after all, to the average Australian, the family home is not just a place for shelter, it’s one of the biggest purchases they’ll make in a lifetime and their future security. For this reason, caution must always rule the heart and buyers cannot afford to enter the market on a whim without plenty of due diligence. However, if you are planning on purchasing, waiting for certainty to set in and the spring market to kick off is not necessarily the best answer.
It’s important to avoid making broad statements about real estate because the Aussie market is fragmented – despite the 12 month ‘correction’ some suburbs have continued to outperform overall flat conditions – and some have yet to fall. Each property has its own intrinsic quality, and part of purchasing well is qualifying the long term value of the home you’re assessing.
You’d be woefully ignorant if you still live under the perception that purchasing real estate is a simple as paying the price listed on the price tag. There is more than one number involved in any negotiation and assessing a property’s worth takes into account a number of factors.
The agent is only interested in meeting vendor expectation. The ‘home’ buyer is only interested securing their dream property for the lowest price possible. The valuer only cares about current market value… and so on. Therefore, if you want to place yourself ahead of the competition, employing a savvy negotiator with plenty of experience to understand these fractions is a step in the right direction.
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchase and negotiate over $100Mil worth of property each year for their clients.www.jpp.com.au
