Auctions becoming a marketing tool: RP Data's Tim Lawless

By Tim Lawless
Monday, 21 November 2011

With auction clearance rates consistently tracking between 45% and 50% since April this year it begs the question, why take a property to auction when you have less than a 50% chance of selling via this process?

Click to enlarge

Melbourne, Australia’s largest auction market, has typically shown a slightly higher clearance rate than other cities, however even in Melbourne the clearance rate has remained below 55% for all but three weeks since the beginning of May and we haven’t recorded a clearance rate higher than 50% for seven weeks.

Click to enlarge

Despite the fact that clearance rates remain weak, across the combined capital cities there were almost 1,900 capital city auctions undertaken last week (the highest number of auctions since the last week of May earlier this year).

Clearly the auction process under the current market conditions is no longer about the auction itself. It’s more about the marketing process and subsequent post auction deliberations. An auction inherently encourages a buyer to play their cards. A registration to bid is essentially an expression of interest in the property. The bidder has revealed in no uncertain terms they have an interest in purchasing the home – it’s much more difficult for a real estate agent to measure buyer commitment outside of the auction or tender process.

With clearance rates this low for this long, most vendors should appreciate when they embark on an auction campaign their chances of selling "under the hammer" are not high. A good real estate agent should be preparing for the post-auction campaign from the absolute beginning of the auction process. With private treaty sales typically taking close to two months to sell within the current market, obviously a fairly large number of vendors believe that a 50:50 chance of selling under the hammer is still worthwhile. Even if the sale is unsuccessful at auction at least they obtain some gauge of buyer interest for their property and can work towards a sale post auction with a vetted pool of buyers.

Tim Lawless is research director of RP Data.