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Jeremy Sheppard Blog post by Jeremy Sheppard

What does the Percentage of Sales by Auction indicate?

Hi I’m Jeremy Shepherd and I’m talking about the Percentage of Sales by Auction. This is a metric we use in our research to help uncover top growth locations for our clients to invest in.

The Percentage of Sales by Auction is a calculation of the number of properties that are sold by auction versus other methods, such as private treaty.

Now, you’re probably thinking that this is very similar to the Auction Clearance Rate — it is similar, but it’s it has significant difference.

The Auction Clearance Rate is the percentage of properties that sell at auction. Here, we’re talking about the percentage of properties that are sold by auction.

So, imagine you’re a real estate agent and you’re trying to sell your client’s property for them. You get a call from a potential buyer and you pass that offer on to the owner. The owner comes back with a counteroffer, which you then pass on to the potential buyer. And then you get another potential buyer making an offer, which you also pass on to the owner — and there’s a bit of back-and-forth. If there’s a third potential buyer that comes in, you’re going back and forth between buyers and the owner like the Pistons in a Redheads hot rod!

So what’s a real estate agent to do?

Why don’t we get everyone together in an auction, and they can bid up prices and we get it all done in one day so there’s not all this toing and froing?

That’s why real estate agents in markets where demand exceeds supply choose to sell properties via auction rather than via private treaty.

If we’re trying to gauge supply and demand for a market, and we know how many properties are listed for sale and what percentage of those are to be sold via auction, then that in itself is a good indicator of supply and demand in the market.

That’s why this indicator — the Percentage of Sales by Auction — is actually a metric of worth for us in our research.

Now, it’s possible that real estate agents can get it wrong — and they pitch a property for sale via auction when the market really didn’t quite suit it. It’s also possible that there are different state laws —State and Territory laws differ around the country —and that can dictate whether properties are sold by auction or not. But, if real estate agents do get it bang-on — they’ve read this market very clearly and accurately — it’s possible that every property that they sell for auction, sells at auction.

The Auction Clearance Rate could then be 100 percent — but that doesn’t mean every property in that market is sold at auction.

So, you could have 10 properties selling, and only 3 have been selected to be sold by auction, and the Auction Clearance Rate is 100 percent… this could be a little bit misleading about the supply and demand in that market.

That’s why it’s important to combine Auction Clearance Rate with the Percentage of Properties that are

Sold by Auction.

We use a whole bunch of indicators in our research to make sure that we don’t get led astray by these sorts of anomalies. If you’d like to learn more about the indicators we use check out our research page. Thanks very much for watching leave your comments below:

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