A lot of emphasis is put on clearance rates each week – particularly in Melbourne and Sydney (the two main capitals of Auction sales) however few people really understand what the clearance rate represents. The broad assumption is that ‘sold at auction’ equates to sold ‘under the hammer’ and a high clearance rate means the market is ‘flying’ whilst low clearance rates, depict the opposite. However it’s not quite so simple.
The clearance figure released on a Saturday afternoon factors in every property that has sold ‘under the hammer’ and also sold via ‘post auction negotiation’. The difference between the number of homes that sell out in the public arena, and those that sell via negotiation – (in all markets) – always tends to fall in favour of the latter. In other words – in our experience, more homes sell via negotiation.
Without attending every auction individually it’s impossible to assess which have sold via post auction negotiation or reached their reserve with heated competition outside the property – however it gives a snapshot of the number of homes which have sold on the day as a direct result of the auction’s marketing campaign.
A lower clearance rate can be a combination of many factors – such as high vendor expectation or low buyer activity. It can also be influenced by larger than usual number of listings being auctioned on a particular day resulting in a lower level buyer competition around those that don’t stand out from the crowd.
Conversely, a lower number of properties auctioned on any weekend can have the reverse effect and produce a higher clearance figure than would be typically expected. However it’s important to understand the clearance figure only relates to a small proportion of the market because most homes are sold via private treaty (the ratio is ‘approximately’ 70% private sale, 30% auction sale). It also only applies to the metropolitan market as properties in outer metro or regional areas generally aren’t marketed for auction.
The other problem with clearance figures is that their accuracy relies on independent agent reporting which can obviously be manipulated when not audited. Selling agents are required to work in the best interests of their vendor. Therefore they will naturally not disclose prices if asked not to do so. Some are also less likely to report an auction as passed in on the day if lengthy negotiations are still ongoing with buyers who attended the auction, (including those who chased up the reserve price post auction in the hope of securing a bargain.) Therefore if the property is sold via post auction negotiation, there can be a delay in figures being reported.
Read part two of this article here.
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
