Why many homes are selling before auction, despite record clearance rates

House hunters in the current market place are increasingly making pre-auction offers in an attempt to avoid large competition on auction day and missing out. When selling at auction, vendors can often face a difficult decision: lock in a pre-auction offer or continue to auction day. Auction clearance rates are at their highest level in years (82.3 percent in Sydney) and the strength of the market is commonly pushing prices higher on the auction floor, yet many sellers are opting to secure pre-auction sales, likely reasoned by having an offer that is too good to refuse combined with fear of the unknown. When the market is booming, it is more likely that inexperienced and emotional buyers can overestimate values, and as a result, the number of homes sold ahead of auction tends to rise when prices are rising, according to economics lecturer Dr Peyman Khezr. In Sydney, a record 37.3 per cent of homes sold before auction last month, Domain figures show. However, despite strong clearance rates, many sellers will have uncertainty about how an auction of their home will go, and may be reluctant to pass on an offer due to concern the interested buyer may move on and competition at the auction may be softer than expected. A seller may be happy to move forward with a potentially lower price without the risk, rather than go to auction day. Vendors who stuck with plans to sell at auction last month sold for an average of almost 13 per cent more than their highest pre-auction offer.

On the other side of things, recent Domain reports suggest there are frustrated home buyers taking a backseat in the current marketplace as rising house prices and intense competition continually knock them out of the market. Described as “boom fatigue” by industry experts, some buyers, particularly those with tight budgets, are putting their plans on hold and waiting to see whether prices will fall before trying to enter the market again. Mortgage broker, Chris Foster-Ramsay, said between 65 percent and 70 percent of his approved customers were changing plans after losing out at several auctions. “It’s the emotional effect that it has when you find a place and are doing all the right things; putting in an offer at the top of the asking price range plus a percentage on top of that — and you’re just getting swiped, just getting knocked out,” Chris said.

Sydney-based buyer’s agents have reported they are advising buyers to rethink their buying capacity and be realistic about what they can afford, many buyers agents having to be upfront with buyers in the market about what they can afford and where. Although it may have been heard that buyers are walking away, more commonly, buyer’s agents will suggest a buyer persevere in order to get into the market, with the idea that thinking market prices will change anytime soon is a risky belief.