What the auction Clearance Rate means to you

Last week I was talking about median prices, so this week, let’s look at another water cooler topic – property auction Clearance Rates.

The “Clearance Rate” we see each Sunday over our lattes, smashed avo and corn fritters is the number of properties which were reported as having sold at or before Auction on the Saturday. This is expressed as a percentage and is taken as a broad indicator of the health of the property market on that day.

It’s one of the more widely used Real Estate terms but if you read the differing newspapers, you can get confused as the figure can vary by a few percentage points from one outlet to another, so the commentary can be slightly different. This variation is due to the method of collection of various outlets – the more reliable reports come from the 2 major advertising portals as agents are generally very quick to post their sales and publicise the great results they achieve, a couple of the other reporting sources either have agents phone them, or they make contact themselves so the reliability is a little lesser in the latter situation.

The initial numbers are a flawed metric because not all auctions get reported in time for the initial data release, so the most accurate clearance rate reports aren’t available immediately; this can be due to agents not having the time to report or update their results by the end of the day, or that negotiations are still on-going – or, agents don’t report their “passed-in” auctions out of a sense of embarrassment or a hope that some interested party will then make contact and they can pitch the property to them again.

Even though these results can be inconsistent, they are nonetheless a barometer of the immediate level of demand overall, and we can make some general observations from them as to the health of the property market. In my experience, a balanced market (where both the vendor and the buyer are on equal footing) is in the range between 62 – 68%; and once we get on either side of this range, the equation shifts in favour of one party or the other – above the 70% mark we see greater demand creating more sales at auction, and once we dip below 60%, we’re generally seeing more supply or vendors with unrealistic expectations of how their property is valued.

As I noted in my discussion on median prices last time, the reported result is a general one, and doesn’t consider variations in different areas so keep in mind that different suburbs will, again, perform at different levels – to give an example, last week’s reports showed a clearance rate of 25% in Ringwood, 69% in Reservoir and 50% in St Kilda, yet the overall clearance rate for the weekend was 63%.

The best approach then, rather than relying on the overall rate, is to follow the property type in the suburb you’re interested in and watch the clearance rate that way, this will give you a much more reliable view of market trends. You’ll see greater detail by property type and from that you start to understand the specific marketplace you’re interested in.

You’ll note I’m avoiding using well-worn tags such as “sellers market” or “buyers market”, these are headlines rather than descriptors – in the main the market does not favour one side or the other, as most vendors will become buyers almost straight away, so there’s no advantage to one side or the other.

The more reliable clearance rate is published mid-week once all advertised auctions have been collated through the media outlets they were advertised on. This figure is generally somewhat lower than the weekend rate for the reasons I touched on earlier, as by then, there’s no escaping the success or otherwise of the auction.