When is an auction not an auction?

With auction clearance rates consistently tracking between 45% and 50% since April this year it begs the question, why take a property to auction when you have less than a 50% chance of selling via this process?

Melbourne, Australia’s largest auction market, has typically shown a slightly higher clearance rate than other cities, however even in Melbourne the clearance rate has remained below 55% for all but three weeks since the beginning of May and we haven’t recorded a clearance rate higher than 50% for seven weeks.

Despite the fact that clearance rates remain weak, across the combined capital cities there were almost 1,900 capital city auctions undertaken last week (the highest number of auctions since the last week of May earlier this year).

Clearly the auction process under the current market conditions is no longer about the auction itself.  It’s more about the marketing process and subsequent post auction deliberations.  An auction inherently encourages a buyer to play their cards.  A registration to bid is essentially an expression of interest in the property.  The bidder has revealed in no uncertain terms they have an interest in purchasing the home – it’s much more difficult for a real estate agent to measure buyer commitment outside of the auction or tender process.

With clearance rates this low for this long, most vendors should appreciate when they embark on an auction campaign their chances of selling ‘under the hammer’ are not high.  A good real estate agent should be preparing for the post auction campaign from the absolute beginning of the auction process.  With private treaty sales typically taking close to two months to sell within the current market, obviously a fairly large number of vendors believe that a 50:50 chance of selling under the hammer is still worthwhile.  Even if the sale is unsuccessful at auction at least they obtain some gauge of buyer interest for their property and can work towards a sale post auction with a vetted pool of buyers.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

Connect with CoreLogic

Enter your email address to subscribe to our e-newsletter, and have new posts delivered via email. You can also connect with CoreLogic on social media.

7 Responses to When is an auction not an auction?

  1. Ross Cutten November 18, 2011 at 5:16 pm #

    I have never been able to work out why Perth agents push auctions. With less than 3% of property actually listed for sale by auction and between 1 in 4 and 1 in 5 selling at the auction it begs the question. And that is far below the less than 50% rate mentioned in your article.

  2. Chris Stavenhagen November 21, 2011 at 6:57 am #

    I have never been tempted to auction a piece of real estate and would only if desperate for a sale at any price. The expenses of pre sale advertising and on costs associated with an auction are difficult to justify paricularly in this climate. There are some agent chains that push auctions and I wonder if the clients are just paying to advertise the agency rather than effect a sale for their own property. Since most auctions fail to make a sale on the day why push tehm? I would be more inclined to have some strategic open houses then auctions.

    • Mal Charlwood November 21, 2011 at 9:22 am #

      G’day Chris.
      I take on board your comments and understand your concern
      The Auction is a process .. not a word. It is about getting the price right. Many vendors have unrealistic price expectations and so can remain on the market for months and become disappointed. If you look at data on regular “private treaty” sales you will find that a majority of property actually sell for up to 20% below the original list price.

      That process could have taken 6 months and cost thousands in extra interest (payments). An Auction would have achieved at least this result with qualified buyers and saved all that time.
      Re the advertising. If you are a serious seller then you will advertise, regardless of the selling method. You can’t sell a secret.

      Kind regards
      Mal Charlwood
      Licensed Real Estate Agent & Auctioneer
      REIQ Accredited

  3. John Roddick November 21, 2011 at 9:21 am #

    only properties which have some unique features or are totally unique, where it is difficult to get an approx. market value should be taken to auction. Maybe that would solve the problem of clearance rates

    • Ham Hassen December 15, 2011 at 4:38 pm #

      No way any property can go to Auction it just a mindset as it is a process and until recently i believed Private traety was the only game but been to Jason Andrew andgot the good oil

  4. Ham Hassen December 15, 2011 at 4:39 pm #

    What about Private treaty clearance rates? been to many open homes lately look how many of those are sitting around!

    • Tim Lawless December 16, 2011 at 11:19 am #

      Thanks for your comments Ham. Private treaty ‘clearance rates’ are pretty difficult (if not impossible) to report, at least in a timely manner. Firstly there is the settlement period which is generally about 30 days then there is the time lag associated with receiving the full population of transaction data from the respective State Governments which can take up to 3 months in some locations. A decent alternative measure is to monitor the average number of days it takes to sell a home and how much vendors are having to discount their asking prices in order to make a sale. RP Data calculates and publishes both these statistics. At the combined capital city level it is taking 55 days to sell a house compared with 47 days at the same time last year. Additionally, the average level of vendor discounting on a typical capital city house is now -6.3% compared with -5.8% at the same time last year. Clearly the metrics are pointing to weak market conditions that favour the buyer – a similar story to what auction clearance rates are showing.

Leave a Reply

Notify me of followup comments via e-mail. You can also subscribe without commenting.