You know the property market is booming when both news stories and real estate agents are boasting high auction clearance rates. However, as with many statistics, the numbers themselves can be misleading if you don’t fully understand the context in which they're presented.

Auction clearance rates are essentially the percentage of properties that sell at auction, generally by a particular real estate agency. Auctioning a property should use a limited window and fierce competition to put pressure on potential buyers into making a higher offer. So when reports of auction clearance rates reach around 70 percent, agents will tell you the market is hot, their auctioneers are highly skilled and now is the time to sell.

Auction clearance rates as a property market indicator

Auction clearance rates will give you some idea of where the market is at, what similar properties are worth, and how much you can expect to sell for. If rates fall to around 30 percent, like they were in Auckland around December 2015, you might want to hold off for a bit in the hopes you’ll get a better price when the market heats up again. It could also be a great opportunity to buy if you want to add to your portfolio.

That said, if your area is highly sought after, then going to auction may still be the best way of maximising your return. Remember that auction clearance rates are reflective of a wider trend and don’t focus on individual properties. Even when the market is cooling off, putting your property up for auction will still attract cash ready buyers and help you sell your home without weeks of negotiation.

"In a recent study based on 82 random auctions from around New Zealand, only 35 sold on the day."

Auction clearance rates don't tell the whole story

In a recent study based on 82 random auctions from around New Zealand, only 35 sold on the day. With an auction clearance rate of just under 43 percent, that’s really nothing to brag about. Of those 35, only 16 met their reserve price! The other 19 vendors had to lower the minimum price they wanted for their property in order to sell it. 

At the end of the day, its in a real estate agents' best interest to publicise the number of auctions that were successful i.e. properties that were sold prior to the auction or at auction. But some agents are reluctant to share the details of properties that were:

• Negotiated after auction.
• Withdrawn from auction or 'passed in'. 

Why? Because it makes them look better in the eyes of potential sellers. So, the next time the media (or an agent) boldly declares high auction clearance rates and 'now' is the right time to put your property on the market, think again. Auction clearance rates are relevant and can be a good indicator when it comes to choosing a real estate agent, but they don’t tell the whole story.

If you are selling, or thinking of selling your house, then download our handy guide to help you through this journey.