Understanding Auction Clearance Rates and what they say about the Market

TV news reporters love to toss in an auction clearance rate in their property segments to illustrate the state of the market. Tada, the market was strong this weekend! While there's no doubt that data can reign supreme – especially in the current market – it’s not always as simple as keeping up with the numbers. 

The most successful buyers and sellers have a deeper understanding of what the data means to them. Here are some of the things you should be looking at to get the whole story. 

Auction clearance rates are a key market indicator that let buyers and sellers know the percentage of properties sold at auction over the weekend and when it might be a good time to make a move. 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. 

In general, a high auction clearance rate indicates strong buyer demand making it a sellers’ market.

A low auction clearance rate indicates low buyer demand making it a buyers’ market. 

How are auction clearance rates calculated?

The most commonly used formula for calculating auction clearance rates is:

Properties sold at auction ÷ Total number of auctions = Auction clearance rate %

Historically, auction clearance rates are calculated after Saturday auctions to report in the Sunday newspapers. But, things can get tricky as there are several ways that clearance rates get calculated, and different platforms use different formulas.

The reported rates may include both the sold at auction results and those sold directly before or after. Withdrawn or passed in auctions are also collected and included, with both classified as ‘no sale’.

These variations can lead to different calculations of auction clearance rates:

(Sold at Auction + Sold Prior to Auction) ÷ (Total Number of Auctions + Properties Withdrawn) = Auction Clearance Rate %

Including sales before and after auction results in the following calculation:

(Sold at Auction + Sold Prior to Auction + Sold After Auction) ÷ Total Number of Auctions = Auction Clearance Rate %

Sorry if we're getting a bit heavy with the maths, but it illustrates how different ways of calculating the rate can tell a different story. 

One of the most important things to understand here is that when a property is sold before auction, it’s sometimes because the vendor or their agent feels like demand is waning, and they want to secure the sale. When the clearance rate is calculated, that property is still counted as sold and therefore boosts the rate, making it seem like the market is hot. 

The main lesson is that before you begin relying on auction clearance rates as a key market indicator, you should determine how the publication or platform you’re reading calculates their percentage. 

There are many other factors to consider when looking at auction clearance rates that will give you a better indication of the market. 

The number of registered bidders is a key statistic. Unfortunately, that’s hard to find out. When auctions are held in person, I often get there early and watch the registration table to get the best understanding of what to expect. How many bids were placed at the auction is another indicator. Agents will analyse these figures with the quality of the property to determine the market. 

So, are auction clearance rates an accurate indication of the market? 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. 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. 

Of course, if you’d like to know more or want any help on your property journey, please don’t hesitate to reach out.