Auction Clearance Rates Defined

When selling a property, you can choose between selling it via private treaty or choosing to go to auction. In this video Henry explains the term ‘auction clearance rate’, and how to look at it in the context of a sale.

“Hi, I’m Henry Wong from ReMax. I’m here today to explain to you what the auction clearance rate is.

So, we have our auction versus private treaty. Say, for example, the current Brisbane auction clearance rate is 35%. Now, what that means, is on the day of auction, 35% of properties sell on the day. Not before and not after. So if there’s 100 houses up for auction on that Saturday, only 35% of them are sold. Now, sold means it’s unconditional. Generally speaking, auctions go for a four week campaign.

So let’s put this in perspective. You have week one, week two, week three, week four. On the fourth week, for example, on a Saturday, if it sells, it’s an unconditional contract. Now, according to this, it’s sold on the fourth week and it has a 35% clearance rate which means it’s sold. 35% of properties sold on the fourth week. Take into account, a lot of people say 35% is very low, probably compared to the past previous years. But let’s compare this to private treaty.

Now, private treaty, we have week one, week two, week three, week four. Now, have you ever heard of the private treaty clearance rate? No? Why? Because it’s not news worthy. Bear in mind. The media is there to also make money, to generate views, advertisement. We put this in perspective. The majority of properties that sold via private treaty is subject to finance, subject to building and pest. Very rarely do you get a private treaty sale that’s unconditional. Like options.

So if you look backwards, when you buy a property via private treaty, it’s usually subject to finance. Definitely more than 90% of properties sold are subject to finance. Right now, with the current banking regulations, most finances works on 21 days. Now, 21 days being three weeks, so if you were to sell on private treaty and to achieve an unconditional contract, which means you’re sold on the fourth week, you’ve got to work backwards three weeks. So you’re sold on the fourth week. So you’re sold which means no conditions. You look backwards three weeks.

Why? Because the banks need three weeks worth of finance. So you work backwards. You need a contract in the first week. Now, how many properties selling in Brisbane get a contract in this market on the first week? To achieve the same result on the end of the fourth week, unconditional. How many? I can tell you, it’s definitely not 35%. You’re probably looking at about 3% or 4%, 5% if you’re lucky, to get a contract in the first week to achieve the same result.

So If you look at 3% to 4%, If you look at the statistics, 3% to 4% to achieve an unconditional contract on the fourth week compared to 35% to receive an unconditional contract on the fourth week. Which one achieves the better result? Obviously, this one. So that’s what auction clearance rate actually means.”