Elite AgentOPINION

Don’t let your clients be fooled by auction clearance rates

Signs that Sydney’s property market is booming should dismissed with clearance rates being partly responsible for skewing market perceptions according to Douglas Driscoll, CEO of award-winning real estate group Starr Partners.

Agents need to remember that auction clearance rates cannot be considered the sole barometer for how the market is performing. Part of the role as an agent is to educate buyers and sellers and one of the best opportunities to educate them is when they bring up clearance rates. Taking auction clearance rates at face value could inadvertently spook buyers into rushing their decision, or sellers into choosing an auction sales method without considering alternatives that might achieve a better sale result for their property.

Many Australians watching the property market are unaware that auction clearance rates don’t constitute how many properties actually sell within a week. Last year the majority of properties went to auction as it was a more efficient process and agents had confidence that these properties would almost certainly sell. However, within a year this confidence has dissipated and currently there are much fewer properties being sold by auction – only ones that agents are positive will sell.

It’s very much a case of apples and oranges. We are still seeing almost all properties go to auction in certain pockets of the lower north shore and eastern suburbs, but this doesn’t reflect the entire market, especially when only about 10 per cent of properties go to auction in Sydney’s west – a community home to 12 per cent of Australia’s entire population.

Sydney in itself is not selling a proportionate amount of properties at auction to make an accurate prognosis of the market. We are currently averaging around 300 properties going to auction over the weekends, but I think we should be looking at the results of total residential sales for the whole week, not just the auctions on a Saturday.

It’s really important for agents to educate their clients on other metrics for assessing the market since auction clearance rates are simply a cross-section view.

My top three tips for determining the state of the market:

1. Review number of days’ properties spend on the market. When the number of days on market goes down, understandably it means that the market is doing well. Likewise, when the number of days goes up, it’s generally a sign that the market might be toughening, or – for Sydney – be a sign of a stabilising market. Reviewing this with your client is a simple way to explain how the market’s performing to those who do not understand the market clearly.

What to tell your clients: Whilst last year was very much a case of a high tide floating all boats, this year tells a different story. Sydney cannot be considered one singular entity and rather agents should encourage clients to consider the market as individual suburbs. By encouraging clients to view each suburb as its own respective area with its own unique features they will gain a deeper understanding of the property market on a more granular level.

According to data from CoreLogic, about 1,000 more properties are being listed for sale than this time last year but the average days on market for Sydney properties this July was 40 days, much different to the average of 26 days in July last year. This highlights how the market is performing today and further exemplifies the importance of encouraging clients to research their area rather than maintaining a generalised view of what is happening all over Sydney.

2. Assess the percent ratio of the achieved price to asking price. One way to advise your clients on how to determine an accurate measure of how the market is performing is to look at the percentage ratio of the price achieved for properties against the asking price. Last year in Sydney, most properties sold for the value within the price guide or above but now we’re in a situation where properties are selling within the price guide or below. But this certainly doesn’t mean the market is crashing. To make an effective prognosis of the market, we need to ensure that we’re looking at all of the facts.

What to tell your clients: According to CoreLogic median house and unit prices are down ever so slightly from the same time last year. For units, it’s about $1,400 less and for houses, it’s about $15,000 less, which really isn’t much in the grand scheme of things. It is important to keep your clients aware of what is going on in the market, and constant communication with clients will allow them to establish their own understanding of the property market. This, in turn, will prevent clients from relying on unfounded and irrelevant information and encourages trust between you and your clients.

3. How to determine more accurate auction clearance rates. We need to make sure everyone is looking at the facts. In the case of auction clearance rates, there’s no automated process to report the results accurately. The exclusion of properties sold prior to auction with no competitive bidding at play further influences auction clearing rates and can’t be used to determine the state of the market.

What to tell your clients: Straight away, urge consumers to take approximately 10 percent off the clearance rates they’re seeing in the headlines. This will provide a more realistic number to make a sound market prognosis. It’s a great idea to educate your clients on where they can look for reliable information. Just one example is Cooley Auctions’ Cooley Index.
While it is clear that auction clearance results are not a viable determinant of the Sydney property market this is not the case in other major cities in Australia. While typically 200 to 300 properties are sold at auction here in Sydney, in Melbourne the figure is two to three times that amount. At those kinds of numbers, auction clearance rates are going to be a much better barometer of the Melbourne market unlike Sydney’s rates, which are tantamount to looking at the property market through a keyhole.

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Douglas Driscoll

Douglas Driscoll is the CEO of award winning real estate group Starr Partners. Originally from the UK, Douglas is widely regarded as one of the industry’s preeminent thought leaders, and is lauded for his dynamic and pioneering approach.