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The real Sydney auction clearance rate was 49.9% not 83.7%

The real Sydney auction clearance rate was 49.9% not 83.7%

There’s a very genteel debate going on over at Fairfax – and for once it’s not about what to do with the legacy business.

This time it’s about the relevance of those house auction clearance rates you see being reported and used to reflect the hype (or otherwise) in the property market at the weekend. And what else do we find? Well surprise, surprise, we discover real estate agents are salesmen not actuaries.

I make this last point because a very close friend was recently invited to inspect a rural property south of Sydney. The agent had told him it would be in the $3–$4 million price range. He visited the holding, spending most of the day away from his family – we had a great time; his family were at my house – and took photos from every corner of the farm. On the way back he thought he’d chat to the competing agent across the road and find out what he could about the property. That agent told him the vendor wouldn’t part with the property for less than $7 million! Furious he found the phone number of the owner and asked for the “skinny”. The vendor told him that he wouldn’t sell the property for less than $5 million. Back at my place he called the agent to ask why he wasted his time. The agent said he give the owner a call and clarify the matter.

Back to our econometricians-at-ten-paces scenario and the issue appears to be between AFR contributor and credit strategist at Aquasia, Mark Bayley, and Dr Andrew Wilson from Australian Property Monitors.

The widely reported auction clearance rate in Sydney for Saturday November 9 was 83.7 per cent.

Mark Bayley reports that this number bears no resemblance to reality.

According to the various reports, there were 784, 1036, or 789 auctions on November 9. Toby Johnstone at the SMH reported 784, Larry Schlesinger at the AFR reported there were 1036 and Andrew Wilson from APM reported 789.

So clearly there’s an issue.

Now, according to APM, 471 auctions (448 + 23 withdrawn) were actually reported. Therefore, as Mark Bayley correctly observes, 318 (789-471) auctions went missing.

But here’s the heart of the matter: of the 471 auctions that were reported, 394 sold, producing an auction clearance rate of 83.7 per cent.

So the papers shout from the rooftops:

“Sydney records a citywide clearance rate of 83.7 per cent despite highest auction numbers to date.” – Toby Johnstone, SMH

“The sizzling 83.7 per cent result was the highest recorded over the last month.” – Andrew Wilson, APM

The issue is that 83.7 per cent is the number produced immediately after the auction weekend using the number of auctions reported at that time. In the following days, more and more (of the missing) auctions are reported and, as you would expect, the number of clearances drops.

According to Mark Bayley, the clearance rates are calculated and reported without waiting for all the results to come in.

That’s like saying I caught the most fish in a fishing competition and being awarded first prize before the rest of the field came back to have their catch counted. The result is irrelevant and meaningless. But it seems the industry cannot get their head around this – and of course it’s not in their interests to ensure you are properly informed.

Never ask a barber whether you need a haircut.

According to Mark Bayley: “If there were 100 scheduled auctions, only 40 were actually sold and 50 auctions were reported, what do you think the auction clearance rate would be? 40 per cent (40/100), right? Wrong! The reported auction clearance rate in this example would actually be 80 per cent (40/50). Crazy? I think so, and my guess is that so would most of the general public.

“By my calculations, using APM’s data, the real clearance rate for Saturday 9 November was a meagre 49.9 per cent (394/789).”

In reporting these adjustments however, Mark Bayley unwittingly stirred the hornet’s nest and uncovered the rather loose and fancy-free relationship real estate agents have with facts.

Cameron Kusher, a senior analyst at RP Data wrote; “…even though they’re indicative of just a portion of the market, they are still a key metric for how things are going on the ground.”

“Andrew Wilson, senior economist of the Fairfax-owned Australian Property Monitors, said it was natural that revised auction rates provided in the days after the weekend came down from Saturday evening figures.”

If it’s ‘natural’ that the clearance rate drops as more data is reported how about waiting until an accurate result is available?

Of course the accurate data is delayed. Why? Because real estate agents are in control of reporting them. Much as it is in the interest of banks to withhold passing on an interest rate cut to their borrowing customers, it’s in the agent’s interest to lean towards releasing data that creates an impression of insatiable demand.

And the race to sell papers on a Monday morning (to all those people dying to see what the clearance rate was at the weekend) ensures that there’s no time for accuracy.

In time, more auction results are reported, but the picture painted is not one of booming clearance rates. Those homes passed-in or those in receipt of only vendor bids tend not to be reported early. The official data is affected neither by the houses that get put up for sale after an unsuccessful auction, nor by those that simply fail to sell and are put up for rent.

Of course, if you want to be panicked into buying, the real number that matters is the price a house sold for compared to its previous sale, or, if it was more recent, the sale result of a similar property nearby.

If you aren’t interested in being panicked, then stick to the value investing methodology espoused here and you will give residential and commercial real estate a very wide berth at the moment.

Whatever you do, don’t be panicked into buying because of high reported clearance rates. It seems statistically significant…that these numbers are meaningless.


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. prem.premachandran

    Most of the properties are now advertised as Sale by Auction so that the vendors do not need to disclose the price but look for best price. Agents then scares the potential buyers that Auction clearance rate is above 80% and if the property goes to Auction then they have a list of Chinese buyers who are ready to pay higher price. They keep ready of couple of (classical) examples, for example one in Eastwood (NSW) was sold one million dollar above the reserve. The agent then tells the seller the reality that it is better to sell prior to Auction as there is no one who can go above certain price. Some property owners are embarrassed to live in the neighborhood if the property failed to sell in the Auction and the worst case is that there is no bid. The property will be sold prior to the Auction by scaring the buyers and sellers and Agent collects his fee and the agent move on to the other property.
    The property is counted as sold in Auction though it is sold prior to Auction because it was listed for Sale by Auction. This boost the clearance rate up.
    Agents then use the new clearance rate to increase his sale and sale price. Its all vicious cycle.
    Auction clearance should only include the property sold under hammer (not before or later). The base of the calculation rate should be all the properties listed for Auction.
    The media is not going to help to expose this misleading reporting as they are party of profiteers. We are seeking help from academics in the Universities in Media, Economics and Finance departments. If the academics in Australia do not help then we will go to the academics in international universities to write the academics in Australia about teaching logic, ethics, moral duty etc.

  2. Yes, lots of failed auctions ‘going missing’ in the eastern suburbs of Sydney, which I’ve been actively and laboriously monitoring using my own spreadsheets for the past 12 months. In fact a unit in my own block failed to sell at auction last week and is now listed for sale, yet I’ve only been able to find it recorded as ‘passed in’ on a single commercial monitoring service that I never hear quoted in the press.

    See for yourself…look up your own suburb, jot down properties going for auction in the next 7 days and then see if the ones that don’t sell appear as PI (passed in) on the following resources or similar:


  3. It’s great to see a blogger reply to comments from the public… Most don’t.

    I can’t believe the media get away with throwing around high percentage stats about clearance rates. I know it is attractive for selling papers,etc, but I guess there isn’t enough people in the media challenging these figures.

  4. Property was my business life for over 40 years. Of the hundreds of agent acquaintances I had, 2 or 3 were close friends, and one has since passed on.
    Why? Because I saw an industry in which the majority of agents were really good guys (around 1965-75) gradually turn feral, as the state industry bodies (real estate institutes) lost their grip on the industry and abrogated their authority to government. so the tiniest minority were truth tellers.So here goes with another favourite stunt of agents viz-a-viz statistics:

    In the area in which I live, you can select most of the sales for 2009-2010 (GFC) and prove that compared with 2012-13, there’s been a 100% jump in values. Big sales in 2009-10 were rare, so the median was much lower. Big sales in 2013 have been common, so the results are nicely skewed to show a huge jump. And if you think that for a buyer seeking the truth, employing a buyer’s agent is the answer, think again. He’s usually on commission too, so he wants the sale as much as the vendor’s agent. A good one is worth plenty, if you can find one.

  5. Dennis Bergmans

    I have no doubt the herd will follow shortly. A lot punters will fear “missing out”. Anecdotally in the work I do, I see a few people becoming more interested in property. It seems property hasn’t been tarnished with the same brush that shares were as a result of the GFC.

    I see people make the same mistakes with investment properties as they do with shares.

      • Dennis Bergmans

        I am a tax agent. I say anecdotally because I “feel” like I am being asked tax advice about investment properties more than in the past few years.

        In the years 2006 to 2008 a lot of people were asking tax advice on, and claiming margin loans through their tax. Now, barely anyone has a margin loan and as a consequence the market, while not undervalued, is not drastically overvalued either.

        I have to remember, the next bubble probably won’t be the same as the last so a bubble indicator probably won’t include margin loans. Though, I will be paying more attention to what is being claimed through tax returns.

        Looking back now, I could have spotted the bank rally and retail decline too. I noticed a lot more people were disclosing higher amounts of bank interest in their tax returns from 2010 to 2011.

  6. Roger,

    I’ll just say:

    For my last finance uni exam, if I skip the last question because I cannot answer it, I do not expect to score 100%.

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