The Truth about Auction Clearance Rates
Unless you live under a rock in Sydney or Melbourne without access to any media, it is highly likely that you hear mention of the auction clearance rate in whichever of those cities you are living at least in very week. In extreme, but not rare instances, the rate is used as a de facto barometer of the state of the economy. At the very least it is used as an indicator of the state of the real estate market.
You may therefore be surprised to learn that auction clearance rates are a pretty iffy thing that might be a complete mirage.
Well, the problem is that the rates are based on reported auction results. And there’s the rub. There is no compulsion on anyone to report auction results, and every week a significant percentage of auction results go unreported. How significant a percentage?
Let’s take July 2019 as an example, as at the time of writing this it’s the last month for which I have auction figures for the complete month. There were 4 Saturdays in that month.
In Melbourne the weekly non-reporting rate of auction results over those 4 Saturdays ranged from 20.4% (27 July) to 27.6% (13 July).
The range for Sydney was 21.2% (27 July) to 25.8% (13 July). So there were days when more than a quarter of all results were not reported.
Does it matter?
Well, it depends. If it is relatively random as to whether a result gets reported or not, then it doesn’t really matter, as one can fairly safely assume that the non-reported results were the same mix of sales and non-sales as the reported results. That means that if all reports were resulted, the overall clearance rate would be very similar to the rate calculated for the partial results.
If the reporting of results is not relatively random, then it is possible that the rate calculated for the partial results (that is, the rate that everyone uses now) could be very misleading. Take an extreme case.
Assume that all of the results that were not reported on 13 July were of auctions where the house was passed in. The publicly reported clearance rate for that day in Melbourne was 69%, and for Sydney it was 74%. If all the non-reported results were for houses passed in, then the actual clearance rates on that day would have been 50% for Melbourne, and 55% for Sydney. In other words, the publicly-reported results for both cities would have been about 40% higher than the actual results. That’s pretty significant.
So, how random are unreported results?
It’s hard to say. In my experience the most common reasons for the non-reporting of results are:
A house is sold, and the owner is not happy with the price obtained, and asks the agent not to report the result.
A house is sold, and the agent is not happy with the result, and thus does not report the result.
If those are the main reasons, then the actual auction clearance rates are in fact being under-reported (the opposite of the figures I gave above).
But, of course, it is possible that an agent is unhappy with a result because there was no result, and thus does not report the result for that reason.
In that regard I note also that in both of the cases I mention above, it is open to the agent to report a property as being sold, but without reporting the sale price. A number of agents do that every week. That being a common option, it does tend to lend weight to the suggestion that many non-reports are of non-sales.
Also, it is possible that a number of agents are prepared to deliberately try to manipulate the auction clearance rate by not reporting houses that are passed in.I would be interested to hear from anyone who can shed light on what reasons are the most likely reasons for non-reporting.
If you want to check the calculations I have made in this section, the raw figures on which they are based are as follows:
All of these figures were taken from the weekly auction results published by domain.com.au immediately after the day the results occurred.
The “results reported” is a figure I have calculated. To obtain it I added together the number of properties sold, withdrawn and passed in on the relevant day in the relevant city.
I derived the weekly non-reporting rate of auction results referred to in the text by subtracting the reported results for a particular day from the total number of auctions on that day, and then dividing that result by the total number of auctions on that day and then converting that figure into a percentage. For example, I derived the non-reporting rate of 25.8% for Sydney on 13 July as follows: 283 – 210 = 73; 73/283 = 0.25.8 = 25.8%.