Why auction rates should make you angry

Expert Advice with Todd Hunter. 22/02/2016

Is it just me, or are you also confused about Auction Clearance Rates? I mean, depending on which
article you read, they can vary by more than 30% each week. But why? The answer should make you a little angry…

The scary thing when it comes to this supposedly all-important statistic (according to the pundits) is that very few people actually appear to know what really goes into the Auction Clearance Rate. Oh, and as is the case far too often in real estate, there is a bit of funny business going on too…
So, if you’re a reasonable person like me, you would think an Auction Clearance Rate is defined as a percentage of the properties that are sold in any week by auction.
Sounds simple, but unfortunately it gets a whole lot more confusing than that. And the issue lies with the data that is collected from the real estate agents making – or not making – the sales. To put it more bluntly, the real estate agents often give the wrong information to the data collection agencies. So first off, let me explain what should’ qualify in these figures. And then I will explain what ‘shouldn’t’ be included.
A property that should be included in these figures is:
• ANY property that goes to auction
• ANY property that is withdrawn from auction on the day of the auction and is not under contract.
The reason for withdrawal was due to no interested parties, so pulling the auction at the last minute allows the agent and vendor to save face. Had that property gone to auction as intended, it surely would have passed in.
Have you ever gone to an auction where it was withdrawn that morning?
I am sure the agent or auctioneer told you that there are interested parties already in negotiations and should you be interested you should step forward and make an offer. But be quick, as the property may not be there tomorrow.
Does that sound familiar?
Now, I am sure there have been instances where this was true, but nonetheless it still should be counted as having gone to auction.
There are no other circumstances I can think of when a property should be included in these stats. But, depending on which real estate agent or agency you speak with, the following scenarios also qualify as a sold property at auction.
• Any listed auction property that sells the week leading up to the auction
• Any property that sells before the auction on the auction day
• Any property that sells immediately after the auction but not under auction conditions
• Any property that sells two days post auction
All of the above are NOT sold under the hammer, so therefore should not be included in the clearance stats. Points 1 & 2 didn’t even make the auction, so no data should even be collected. The last two should be recorded as passed in.
So why would real estate agents do this? First reason: ego. Higher clearance rates make them look more successful than they actually are.
Second reason: ignorance. These ‘professionals’ don’t actually know what qualifies and what doesn’t. So, you might say, “who cares?” And, that’s a fair enough question. But since you have your hands on a property magazine, you should care – either as a buyer or a seller.
I wouldn’t want to list my house for auction if I had been convinced by skewed statistics that auctions were the best method for selling. Especially when the data can vary by 30% or more!
And, the pain can follow you long after a silent hammer – houses that have been passed in at auction usually sit around because they have gone stale. That is, of course, until they have a significant price reduction.  Had the right method of sale been used in the first place, this could have been avoided.
The simple solution is education!
Here’s my buying at auction tip: only register if you are the only bidder. That way, you control all the cards.

Todd Hunter is director, buyer’s agent and location researcher for Sydney-based wHeregroup. He is an active property investor himself and amassed a portfolio of 50 properties by the age of 31. For more of Todd's musings, visit the wHeregroup blog.

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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