Real estate clearance rates can help when deciding to buy, sell, or even look at the market. In order to jump-start your prospects, it’s best to have a full understanding of the term and what it entails.
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What is a clearance rate?
The property industry typically has conflicting views whether it be about what’s popping up on the market versus what properties to avoid. Unless you know the future, knowing what is to come when it comes to real estate is a tricky assessment. This is where real estate clearance rates come into play.
A clearance rate is a figure that represents the number of properties sold at an auction in a certain, fixed period of time. Selling property through auction is a growing trend in the industry, and clearance rates are key indicators to determine where the demand is.
A real estate clearance rate is expressed as a percentage, signifying how many properties are sold or cleared at auction. This rate is used to see if the market is favouring buyers or sellers during that specific period.
What is included in a clearance rate?
The REIV, or Real Estate Institute of Victoria, which is the organisation that supports Victorian real estate, deems property clearance on a property only if it is sold on the day after the auction, which allows for post-auction negotiation. Any time after this is recorded as a private sale and not included in the real estate clearance rate.
The number of withdrawn and postponed auctions is not included in the clearance rate calculations because they haven’t been a part of a full auction campaign.
Passed-in auctions are reported but not used to calculate the property clearance rates either. Out of all the passed-in properties, the REIV is responsible for reporting how many were passed-in on a vendor bid.
If they like, an auctioneer can use two vendor bids during an auction on behalf of the owner. Not everything is included in a house clearance rate, but there is a lot that is.
How to calculate clearance rate
So, how do you calculate clearance rate? Essentially, each week, the Real Estate Institute of Victoria collects nearly 97% of the auction results from across Victoria.
This massive chunk of data is used to determine the real estate clearance rate. They take the auction results and then divide the total number of properties sold at the auction (before or after) by the total number of auctions that were reported.
The results of this calculation are then used to determine the state of the market. A high clearance rate is preferred over a low clearance rate.
Whether you are new to the scene or consider yourself a seasoned rookie, this information is crucial in your day-to-day real estate business. It allows insight as to when to try and sell what as well as when the market is favourable to the seller or buyer.
What is considered high or low?
When looking at a low real estate clearance rate, such as 60%, this indicates that there is low auction interest along with decreasing house prices. These are two sure indicators of a favourable buyer’s market.
On the other hand, a high clearance rate, which can be usually seen in the range of 75-80%, indicates high buyer demand with low available housing stock. This state of the market favours the sellers.
Even though these numbers are definite, it is also worth it to take other factors into account such as how many auctions have been held. If there is a high clearance rate stemming from low auction numbers, it is not incredibly indicative of the market. The same can be shown with high auction numbers with a low clearance rate.
Looking out for ‘Super Saturdays’ is also worth it. They are weekend whenever more than 1,000 auctions are held.
When there is a high clearance rate during this weekend, it can typically indicate strong buyer demand.
What affects clearance rate?
There are a few additional factors that can affect clearance rate. First off, external factors can determine how many auctions are actually held as well as the weekend’s clearance rate.
Events like holidays, sporting events, weather, and more affect how many people come out for auctions and, therefore, the rate that is produced from a certain weekend.
Although you can generally trust turnout, it is important to consider different factors that may be affecting the market. Without taking a look at this critical information, you will likely misattribute the reason for certain rate percentages.
How to use clearance rates
If you’re still a little lost on how to use these clearance rates, just keep in mind that the property market is forever changing. The auction clearance rate is only one way to get a good sense of the market sentiment and should not be what you put all your weight on when forming a decision.
What will help in the end is an ample amount of research in order to gauge your success on the market as a buyer, seller, or agent. Your personal circumstances tell a whole lot more than a bunch of numbers ever can.
Real estate clearance rates should be used in addition to the information you’ve already gathered for yourself. They are simply a tool of knowledge.
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