If you are like most property investors, one of the first sections you look up in Sunday or Monday’s papers is the auction results.
The auction clearance rate is by far the most reported real estate statistic; particularly in Sydney and Melbourne where most newspapers and property-related websites headline the clearance results in their Monday editions and lately there has been some rather sensationalist reporting of these figures.
While auction clearances are one of the most commonly cited benchmark for the relative health of the residential property market, unfortunately, they are not really understood and often misrepresented.
What these figures are meant to show is the percentage of properties that were auctioned on a particular weekend that were actually sold at auction. For example, if there are 100 auctions being held on one weekend and there are 75 sales, then the clearance rate is reported as 75%.
However while I also report them in this blog on most Mondays I must admit that auction clearance rates are not what they seem to be.
If you think about it, only around 14% of residential property is advertised for auction across Australia and 85% of these auctions take place in Melbourne and Sydney. Brisbane’s market share is just 7%.
So reporting auction clearance rates only tells us about the health of a small segment of our markets – the inner and middle ring suburbs of Melbourne and Sydney
Also, clearance rates only tell us the reported percentage of auctions that were successful.
I have found that if a property is unlikely to sell at or very soon after the auction, the property is withdrawn and sold by private sale. Hence, only properties more likely to sell at auction go to auction.
Talk about stacking the deck!
Recently SQM Research http://www.sqmresearch.com.au explained that the number of unreported results has risen dramatically. They suggest that in every city, at least 10% of listings are not being reported.
Now just to make things clear…I think auctions are a great way to sell certain types of properties. If I was to sell my home, I’d certainly put it to auction.
But the take home message from this blog is to be wary of reading too much into reported auction clearance rates. They are certainly lower than what the media is currently reporting.
Whatever the motive in this, inaccurate and misleading data is harmful for both buyers and sellers as they develop the wrong expectations.
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