Clearance rates can be used to measure the success of an auction. They are the percentage properties that were sold over a particular period. These numbers are usually calculated on a weekly basis.
Calculating auction clearance rates
Commonly, the auction clearance ratio is calculated by subtracting the number of properties sold during auction days from all the properties available for sale over the time period.
Domain, CoreLogic, SQM Research and CoreLogic typically calculate clearance rate following Saturday’s auctions. The numbers are reported by Sunday. There are several ways to calculate the clearance rate on these platforms.
These are just a few variations of the formula.
[(Sold at Auction + Sold Prior to Auction) / (Total Number of Auctions + Properties Withdrawn)]Clearance Rate at Auction (%) = x 100
This formula also includes sales that occurred before the auction. This formula also includes the number properties that were withdrawn in the overall supply.
[(Sold at Auction + Sold Prior to Auction + Sold After Auction) / Total Number of Auctions]x 100 = Auction Clearance Rate (%)
This variation considers both sales numbers before and following the auction events. The total auctions will divide the total sales.
What does the clearance ratio tell us about the housing market
Michelle May, founder and CEO of Buy Your Side, said that auction clearance rates are an indicator of buyers and sellers’ current housing market dynamics.
“In markets where auctions are the primary mode of sale, like Sydney, the auction clearance rate is the most common piece of data used to determine whether it’s a buyers’ or sellers’ market,” Ms May told Your Mortgage.
“In general, a high auction clearance rate indicates strong buyer demand making it a seller’s market.”
For instance, if a market has a clearance rate of over 60%, it will be considered a seller’s market.
Ms May said that this may not be the case all the time, as sales could be made prior to the auction.
Sales before auction — what does it mean?
Clearance rates can also calculated using other methods such as date and number of actual auctions.
Ms May said that this could lead to a reduction in clearance rates. This could make the market seem hot when it is actually that sales before auction could mean many things.
“One of the most important things to understand here is that when a property is sold before auction, it is sometimes because the vendor or their agent feels like demand is waning, and they want to secure the sale,” she said.
“In some cases, it can be a distress sale, however it can also be the other way around. It could be a knockout offer that has been made, which has caught out the other buyers who cannot compete that quickly, and at that level.”
Agents may sometimes feel obliged by law to place a bid even though there is very little interest in the property.
“A third reason may be because the vendors have already bought or have their eye on a property to buy and want the surety of the buyer locked in,” Ms May said.
“One cannot underestimate the selling agent’s motivation – they may typically sell the vast majority of their stock prior to auction as they are a volume agent or deal-doers.”
Can market clearance rates be measured?
Ms May stated auction clearance rates can provide an indication of the market’s performance but it does not paint a complete picture.
“Without a doubt, they offer a quick insight into the state of the market. However, they shouldn’t be the only data you rely on when deciding when to buy a property,” Ms May said.
“It always pays to dig a little deeper and knowing where to look will give you the best chance of securing your dream property for a reasonable price.”
The number of bidders is a good indicator of the market’s tightness or hotness.
These indicators can be used to determine the market value of individual factors. For example, the percentage of properties that were sold before and/or after the auction, or the days-on-market.
In an analysis, Raine & Horne executive chairperson Angus Raine said the number of days-on-market provides a better “gauge to the health of the market”.
The days-on market measurement is the time required for a property to be accepted. This starts when a property goes on the market.
“If the days-on-market are short, then it’s appropriate to label it a seller’s market,” Mr Raine said.
“In contrast, in the dark days of the GFC a decade ago days-on-market for housing in some regional centres were closer to 350 days and these were markets favouring buyers.”