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Nervous sellers steer clear of auctions in Melbourne’s depressed property market

Even though many Sydney siders would disagree, Melbourne undeniably holds the title of Australia’s sports and entertainment capital, hosting an array of live theatre productions, big name concerts and numerous sporting events, including the world renowned Melbourne Cup.

So it’s no surprise then that us Melbournians love to watch the drama and spectacle of that most tension filled production unfold before us almost every weekend; the real estate auction.

Melbourne also has the reputation as the auction capital of Australia, with more houses going under the hammer here than in other city across the country.

But it may surprise some readers that less than a quarter of all transactions over the past decade were done via auction, with more people opting to sell privately.

According to a Herald-Sun article, while auctions are popular with vendors when the market is robust and properties are selling like hotcakes, not surprisingly in slower conditions sellers tend to shy away from what is often a very stressful and emotional experience, in favour of a private marketing campaign.

Data from the Real Estate Institute of Victoria reveals that 31 per cent of all properties transacted last year were sold at auction and this coincided with a 20.4 per cent increase in house prices. But in 2005, when house prices fell by 2.3 per cent, only 17 per cent of home owners decided to sell their properties under the hammer.

It’s no real surprise then that two thirds of properties currently on the market in Victoria are listed for private sale. With Melbourne’s depressed market seeing house prices ease and four out of 10 properties failing to sell at auction, more vendors are steering clear of the auction process.

When REIV data is placed alongside that of the Valuer General, we can clearly see defined auction trends occurring in Melbourne, particularly with regard to geographic factors. Auction campaigns are more concentrated around the inner suburbs, with very few occurring in the outer suburbs or growth areas.

The REIV says auction hotspots include inner suburbs like Windsor, Essendon West, Alphington and Kingsville, while houses in outer suburbs like Pakenham, Caroline Springs, Cranbourne, Melton and Werribee almost always sell privately.

REIV spokesman Robert Larocca said even though properties closer to the CBD are more likely to go under the hammer, “…just over seven out of 10 homes still sell by private sale.”

Often the method of sale will depend on the direction vendors are steered in by the selling agent. If a property is unique and therefore difficult to put a comparative value on, agents tend to prefer putting the property to the open market to determine how much they’re willing to pay.

Whereas “mass produced” homes in outer suburban estate developments are best sold privately, where comparable properties are generally a dime a dozen and it’s unlikely that a large number of buyers will be competing to secure the sale.

I know that the Sunday and Monday papers make a big thing of the auction clearance rates, they are only one of the many factors I take into account when measuring the strength of the property market. While they are a useful barometer in Melbourne, auction clearance rates are really much less significant in other capital cities.

With Spring upon us now, I don’t expect as many auctions in Melbourne this year as vendors, who in general are a little more nervous, will be more likely to place their property for private sale.

I still love the theatre of auctions and have bought some great bargains at auction, especially when there are no other bidders and you get to negotiate with a demotivated vendor.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth 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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