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Auction clearance rates: what are they and how are they calculated

Auction clearance rates are probably the most common quoted property statistic.

Each Monday the papers and the blogs dissect the weekend clearance rates.

Are they up? Are they down? And what does it all mean for the future of property?

Then of course there are those that question the validity of the reported clearance rates, saying that the real estate industry “fudges the figures.”

Enzo Raimondo, Chief Executive Officer of the REIV recently wrote an article in The Real Estate Conversation that answers many questions and clears up confusion.

Here is what he had to say:

enzo raimondo

Clearance rates are a key property market indicator and are generally used to establish if the market favours buyers or sellers.

Clearance rates are expressed as a percentage and signify the number of properties sold, or cleared, at auction for the week or month.

The REIV releases preliminary clearance rates for the week on Saturday evening and a revised clearance rate every Wednesday.

A low clearance rate, such as 60 per cent in 2012, indicates low auction interest and declining house prices, suggesting a buyer’s market.

A high clearance rate, such as it is currently at 77 per cent, is considered a ‘hot market’ as buyer demand is high and available housing stock is low.

A high clearance rate indicates the market favours sellers.

How is it calculated?

Every week the REIV collects about 98 per cent of auction results in Victoria – the highest of any data provider in the state.

The weekly auction clearance rate is then calculated by dividing the total number of properties sold at auction (including those sold before or after auction) from the total number of auctions reported.

The REIV only classifies properties as having ‘sold after auction’ if they sell on the day following the auction, as it allows for a period of post auction negotiation.

Properties sold two days after a scheduled auction are recorded as private sales as they are generally not sold under auction conditions.

The REIV also report the number of withdrawn and postponed auctions but these are not included in the clearance rate calculation as they have yet to be held and have not been subject to a full auction campaign.

The number of passed-in auctions, that is properties that weren’t sold, are also reported but not used to calculate the clearance rate.

Of the number of passed-in properties, the REIV also reports how many were passed-in on a vendor bid. An auctioneer can use two ‘vendor bids’ – bids on behalf of the owner – during the auction.

How do auction numbers vary?

When looking at clearance rates, it’s also important to consider the number of auctions held, as a high clearance rate from low auction numbers is not necessarily indicative of a strong market, just as a low clearance rate from high auction numbers does not always indicate a declining market.

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Weekends where more than 1,000 auctions are scheduled, or have taken place, are often referred to as ‘Super Saturdays’.

High clearance rates during Super Saturdays generally indicate strong buyer demand.

The number of auctions held varies throughout the year and is often dependent on a range of factors including interest rates, the number of properties on the market and season.

Despite gaining in popularity, auction is not the primary method of sale in Melbourne or Victoria and only accounts for around 30 per cent of the state’s total property transactions.

However, auctions account for about 50 per cent of sales in Melbourne’s inner and middle suburbs.

What can affect the clearance rate?

Many external factors can influence how many auctions are held as well as the weekend’s clearance rate, including sporting events, religious holidays and weather.

Traditionally AFL Grand Final weekend has the lowest number of scheduled auctions.

What does it mean?

While the auction clearance rate gauges property market sentiment, it is only one of many indicators and should be used in conjunction with your own market research.

If you’re looking to buy or sell, it is always worthwhile attending local auctions and assessing comparable properties.

This article was written by Enzo Raimondo, Chief Executive Officer of the REIV  and appeared in the RealEstateConversation



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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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