June 3, 2017
Ben: So here we are, The Location Score Lads and we are here to talk to you about Auction Clearance Rate. So Bryce, what's Auction Clearance Rate?
Bryce: Yeah, it's the bane of my life Ben. Particularly when it's running really high, but as a Buyers Agent, we go to an auction and we want to be the only bidder at the auction but...
Ben: Go away everyone...
Bryce: it's like going to a restaurant on a Friday night and if it wasn't for the other old people around here, it's a bit like that but the auction clearance rate as it sounds - how do these properties clear during the auction clearance campaign but what's often forgotten is it also includes the period leading up to the auction if it sold prior, (the three days), and also after. So the Auction Clearance Rates that you see on a weekend get adjusted through the week. But largely as we speak, how many properties go under the hammer, under the campaign; versus those that sort of fiddle away and they've got to go through a private campaign.
Ben: Totally, and I think what's really important to understand here is that there is confidence here with the agent because he's got enough buyers and he wants to take it to auction. So for me it's one of the absolute key indicators for real time demand in a market, whereas we get a lot of data that gets reported three or four months later. I just absolutely love this stuff because it's in real time for me. So Jeremy, in terms of auction clearance rate score, tell me some other things you may have seen that have been good scores and not so great scores.
Jeremy: Well obviously the best score is 100%, worst is 0. DO you need any more information? I think some of the scores can be a little misleading like whenever you see something like 0 or 100%, it's possible that there's only been 1 auction. 33%, there may have been 3 auctions and 1 sold. Again, very thinly traded so it can be an unreliable indicator if the volume is quite small. But you see something like 81.6% and you know there's been more than just a couple of auctions there, and that is a high rate. Anything above about 70% you're looking at, for a large area, where demand is definitely exceeding supply. And anything below about 40% should be triggering alarm bells.
Bryce: And it's more of a big metropolis market measure. I think it'a a wonderful measure but it doesn't work everywhere. If you think about the Perth Market, the Tasmania market, even the Queensland market, when it's a bit of a seller's market there may be a few more auctions but generally speaking it's a Melbourne and Sydney measure. Not exclusively but generally speaking. So it's a terrific measure, but so long as you're in a market that's big enough. So I guess it's another reinforcement that these indicators are great but in isolation they don't tell the full story.
Ben: And you want to look over a period of time too so let's say we've only got that week where there's a record f 100% for that 1 auction sold, but then there's the next weekend where there's 12 going to auction and it may have been a long weekend that weekend and so that skewed the number but we start to see that number trend out over time and that's really important to understand. That we're not just saying ok let's just look at one week or two weeks or three weeks. We're actually trying to look for a trend and you'll see that in the reports that you get around that trending line. And if the auction clearance rate is trending up, that's a really good sign that the area is under demand pressure isn't it.
Jeremy: Yes for a large market like city market, if you can see that in the trend, it's an indicator that something is going on there. But in smaller markets just at a suburb level, it really becomes an issue of how many auctions in a thinly traded market. And you can find that some properties lend themselves well to auction, so atypical properties or affluent areas have more auctions than lower socio-economic demographics.
Ben: And one last tip is also, don't just look at the actual suburbs, you've got to break it down into units and houses because there might be really strong demand for houses but not so strong demand for units. If you're looking to buy a unit in that market, it may not be a good measure of supply and demand. So there you have it, Auction Clearance Rate. Another one of the important variables on Location Score.
Note: This is just a brief explanation on Auction Clearance Rate. If you are interested to learn how you can apply this in your own research, our upcoming webinar will unpack this in more details. Learn more about our webinar here.
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