What is an Auction Clearance Rate?
What does it mean?
The auction clearance rate is the proportion of properties that were offered at at auction during the week that were successfully sold. For example if there were 100 homes put up for a auction and there were 70 properties sold, then the ACR would be 70%.
Understanding ACR is useful even if you have no plan to sell or buy at an auction. The ACR can indicate how the current real estate market is performing. This can be a barometer of supply and demand not just in the auction market but also for private sales because this is the closest thing to real time sales data.
Generally, if the ACR is below 60% we are in a "buyer’s market” where the demand for properties is low or there are more houses on sale than home buyers in the market. If the ACR is up around 70%, we are in a “neutral market” where the supply of properties and the demand for it is equal. Lastly, if the ACR is 80% or more, we are in a “seller’s market” where there is a high demand for properties.
How is it calculated?
Auction clearance rates are calculated on a weekly basis. The total number of properties put up in the auction will be divided by the total number of properties sold under the hammer, including those sold before and after the auction, and also those that are passed in and withdrawn. Take note that there are many real estate organisations that publish auction results. Each source might have a slightly different number.
How do auction clearance rates indicate property market sentiment?
Essentially, the auction clearance rate provides you with a representation of how the auction market is behaving in terms of supply and demand for properties. If we are in a sellers’ market it suggests that the real estate market is buoyant and this is a good time for sellers or vendors because buyers will be forced to increase their offers.
By contrast, a buyer’s market is the best time for home buyers. It indicates there is low demand for properties and we are likely to see a decline in house prices. For this reason, checking out the auction clearance rate is a good way to measure market sentiment.