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Auction clearance rates have plummeted, but vendors shouldn’t fear ‘the pass-in’

Auction clearance rates have dropped in Sydney and Melbourne this year, but vendors needn't fear the pass-in, experts say.

Auction clearance rates have dropped in Sydney and Melbourne this year, but vendors needn't fear the pass-in, experts say. Photo: Getty

The number of homes selling at auction has fallen sharply this year, but vendors are still sealing the deal after their properties are passed in.

Cooling real estate markets in Sydney and Melbourne are behind the drop in auction clearance rates, as buyers and sellers adapt to a post- price-boom landscape.

There were 837 auctions on the first weekend of June in Sydney, with fewer than half selling on the day. The auction clearance rate of 47.1 per cent was more than 30 percentage points lower than at the same time last year, when 1019 homes went under the hammer for a 71.9 per cent clearance rate.

Auction clearance rates for the first weekend of June, 2018. Source: CoreLogic

In Melbourne, the country’s biggest auction market, 1079 homes were taken to auction with 59.8 per cent selling, compared with the 1188 homes auctioned off at a clearance rate of 73.1 per cent on the same weekend last year.

The results highlight the shift taking place in Australia’s major cities in 2018, with national home values down -0.4 per cent annually at the end of May.

Capital city dwelling values as at May 31, 2018. Source: CoreLogic

The drop in clearance rates was inevitable, Wakelin Property Advisory director Paul Nugent says.

“If you use clearance rates as the barometer for the market, you have to suggest that the clearance rates for Sydney, Melbourne, and to a lesser extent Brisbane, for the last few years were unsustainable,” Mr Nugent says.

“Clearance rates of 70 and 80 per cent can’t last. It’s really an aberration. Whilst it happened over a long period of time, we shouldn’t expect it to always be present.”

In a “balanced” real estate market with a proportionate number of genuine buyers and sellers, auction clearance rates would be expected to hover around 60 to 65 per cent, Mr Nugent says.

“What we’re seeing in Melbourne and Sydney is clearance rates lower than that, which you really would say is a buyers’ market.”

With fewer homes selling at auction, vendors need to be realistic about their price range, Mr Nugent says.

“Vendors should have no fear on passing a property in if they are realistic in their wishes,” he says.

“If you’ve got a willing purchaser there on the day, and the vendor has a slightly high notion of value, and the purchaser’s being a bit tough, you generally find the deal can be done on the day.

“Otherwise it might take a few days for the deal to be consummated if more work needs to be done on either the buyer or the vendor.”

Time-on-market figures – the number of days between a property being listed for sale and the contract date – show that the median time a house took to sell as of June 3 was 39 days in Sydney, with average vendor discounting of -6.7 per cent, and 31 days in Melbourne with average vendor discounting of -4.9 per cent.

Source: CoreLogic

If a property hasn’t sold within three weeks of auction “it’s straightforward – the price is too high”, Mr Nugent says.

“If you’ve got a willing purchaser, vendor and right quote range, it should sell on or shortly after auction day.”

In a balanced market, auctions are often merely the beginning of the selling process.

“Every seller goes down the path of wanting the auction to be the end of the process, the means of fulfilment, and more often than not it’s not the case,” Mr Nugent says.

It’s here that a skilled negotiator can be the difference between success or disappointment for both seller and buyer.

“In times like this, the selection of the selling agent is more crucial than it has been in the past,” Mr Nugent says.

“Have someone on your side who is a skilled negotiator, and someone who can go in to fight for you, draw a line in the sand, and tell you the truth.”

Despite softer clearance rates, auctions are still the way to go for many residential properties.

“In a strong market auctions are a great way to go because vendors end up with a result they couldn’t possibly achieve under private sale,” Mr Nugent says.

“In the current market it doesn’t necessarily achieve a price that exceeds the vendor’s expectations, but it creates a result in a defined timeframe.

“What it does now is draw out genuine buyers.”

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