Are auction clearance rates important? | Dr. Andrew Wilson

With the strong property markets around Australia seeing more and more properties being sold at auction not only real estate agents, but also commentators measure auction success rates around Australia.

Just how accurate a measure is it and should it be a measure? Dr. Andrew Wilson, a senior economist with the Domain Group joined me on the Real Estate Talk Show recently.

He says we pay too much attention to auction clearance rates and challenges if they are really a good measure of the health or otherwise of the property market.

Here’s the transcript of the interview:

Kevin Turner: Andrew, is auctioneering becoming more popular around Australia?

Andrew Wilson: I’m not surprised, Kevin, that we are seeing rising numbers of auctions, particularly in the big markets of Sydney and Melbourne.  andrew-wilson

We have a very strong competition for property in both those markets, particularly in the city and higher priced properties, which has traditionally been the realm of auction as a marketing tool, but we are starting to see auctions now are becoming more popular.

As I said, it does reflect a strong competition for property amongst buyers. We’ve seen prices rising, and an auction is usually and typically the best way to maximize or optimize your price outcome, when you have plenty of competition amongst buyers.

It can go the other way, of course, if you don’t have much competition for buyers as a property, but look, we’ve got a strengthening market at the moment in most standards.

I think auctioning is becoming more popular also in some of those areas which haven’t embraced it as strongly as Sydney and Melbourne have. I think, in particular, the Brisbane market.

I think we’re starting to see more auctions happening in the Brisbane market, and I think as that market rises this year, as I expect it to, I think we’ll see that only increase.

I think it does optimize the value aspect for the seller, for the vendor, and I think we’re seeing more competition for properties, particularly in inner and middle suburbs of Brisbane. I think we’ll see more auctions as a result, Kevin.

Kevin Turner: Does auction become more popular as we become more uncertain about price expectation or even what’s happening with prices, Andrew?

Andrew Wilson: Yeah, absolutely, Kevin. On the upside, of course, we’re seeing a lot of press lately about under clouding by agents, but look, it’s very tough in this market at the moment, particularly in the Sydney market and the Melbourne market in some areas to actually come up with a, I guess, a credible reserve, because there’s so much competition for property and buyers are very enthusiastic.

We’ve seen price growth at the best levels for four years in Melbourne and for ten years in Sydney. It is difficult to asses price outcomes in that market. Typically we’ve been seeing ten to twenty percent exceeding, reserves exceeding ten to twenty percent typically in some of those areas.

I do think that auctions are becoming more popular, and look, we’re seeing it even in the popular media now with auctions. We’re seeing auction reality shows.

The people capture the theater of the auction, and I think people become more used to using auction, particularly buyers, as a mechanism for purchasing property, and of course, vendors as well.

[sam id=37 codes=’true’]Kevin Turner: How many auctions do you think there need to be in a marketplace for it to be an accurate measure of what is actually happening with property prices.

If you look at the auctions in, say, Queensland, you mentioned Brisbane there, but if you look at it in Queensland, where it’s really only been such a small percentage of the overall sales, at what level does it have to get to so it does become a barometer?

Andrew Wilson: You’re spot on, Kevin. Look, we can get a pretty fair indication of how the market’s operating from the Sydney and Melbourne weekend auction clearance rates.

We get enough of a snapshot of the property markets get a sense of the underlying trend of what’s happening generally in the housing market, but those Brisbane numbers are a bit skinny and we really don’t get a good indication of what is happening generally in the Brisbane market reflecting what auction results are.

I think we need more auctions in Brisbane before we can really use that as a barometer for market temperature, overall.

Kevin Turner: We’ve heard a lot of comment, too, and you touched on it there about price baiting and price ranges. There’s been a lot of comment within the industry and even outside the industry.

We hear stories of properties that actually go over the reserve rate, you say by ten to twenty percent, which can be as much as 100,000 dollars. If I were a seller, I don’t think I’d want my agent to be talking price if I were going to auction.

Andrew Wilson: Kevin, that’s the ultimate, I guess, scenario for an auction, and that is don’t declare your price. Let the market set the price. It’s up to the buyer to determine how much they can pay, can afford to pay, and are prepared to pay.

That’s part of an environment where there is no price. There is no discussion. Obviously, you’d do that in a market that was strong and rising and there was plenty of competition for property, but I agree with you.

At the end of the day just put the property up, put it under the hammer, and let the buyers fight over it.

Kevin Turner: It was good talking to you, Dr. Andrew Wilson, Senior Economist with the Domain Group. Andrew, thanks for your time.

Andrew Wilson: Thank you, Kevin.


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