What do auction clearance rates mean?

This piece was originally written a few years ago, when clearance rates were lagging at the end of spring. Then we noticed that Sydney auction clearance rates again climbed over 80% after a few weeks “slumming it” in the 70s. What do auction clearance rates mean? Were they showing that the market was getting stronger again?

Well, not necessarily. You see, auction clearance rates, like all statistics, are really just an indicator and some delving into how the number is arrived at can paint a different picture.

The clearance rate refers to the percentage of property that have been offered for sale by auction (and the results measured) in a particular week that sold either prior to auction, at auction, or after auction before midnight on the day of auction. So it doesn’t purely refer to properties that actually sold “under the hammer”.

Why does this matter? Well, people tend to assume that all property included in the clearance rate sold competitively. But if a property is sold by negotiation after passing in, it probably wasn’t competitive. It also relies on vendors setting realistic reserves and agents effectively managing their price expectations.

What do auction clearance rates mean? Well, the answer largely depends on the prevailing market conditions at the time.

Right now we are seeing an increase in pre-auction sales. When the market is truly hot agents are not at all keen to sell prior. However, when the market starts to cool, the first thing we notice is that agents are open to pre-auction offers. These sales are included in the clearance rates, so they could be bolstering the figures while actually masking a softening in the market.

Many agents are commenting that they are finding it a little tougher out there at the moment – less buyers attending open houses, fewer contracts issued per property, not as many bidders registering at auctions. This is typical of a spring market when the supply/demand scales tip in favour of the buyer.

When I first wrote this blog, the clearance rate had dropped a fair way back into the mid 70s – at which point I considered that agents couldn’t sustain pre-auction sales for too long in the face of cooling interest from buyers. Now, in 2018, I am seeing that agents have honed their skills in this regard and are doing much better at engineering pre-auction offers. Yet, while we know this to be the case, clearance rates have still fallen well below 70%.

It’s just interesting that clearance rates might still be high, yet how those numbers are achieved tells a deeper story about market conditions. So it pays for buyers to look beyond simple statistics to see what is really going on when asking what do auction clearance rates mean.

Further reading:

Is The Sydney Property Market Slowing? 5 Signs To Look For…

What does auction price guide mean?

First Published: 11 November 2014

Updated: 10 May 2018

DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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