For better or worse, a heavily relied upon leading indicator of property prices is the auction clearance rate. The clearance rate is a simple measure of the proportion of residential properties that sell when auctioned. A high clearance rate (more than 70%) implies that housing demand is strong, and prices will probably rise. By contrast, a clearance rate that falls below 70% tends to mean that vendors are pricing their own properties above what the market is willing to pay and is a useful portent that prices will fall. It is for this reason that the weekend papers slavishly quote clearance rates every week. A problem arises, however, when influential papers such as The Age in Melbourne quote data supplied by bodies such as the Real Estate Institute of Victoria, which are intentionally miscalculated to give the appearance of a stronger market than is actually the case.
Yesterday, a percipient Crikey tipster questioned, “why is the Real Estate Institute of Victoria allowed to peddle their unreliable data to paint a completely different picture of the Melbourne property market? Taking into account ‘no-result’ auctions over the past five weeks, the clearance rate is falling — now to below 60% — yet the figures the REIV present indicate a clearance rate at more than 70%. The market isn’t as balanced as they would have you believe. Anyone who has studied investor behaviour knows people are more comfortable to move with the herd and reassurance that others are buying will influence their choices. The misinformation is deliberate as the REIV attempts to massage the market and stop buyers making informed decisions”.
Correct data is ironically quoted in another Fairfax paper — the Australian Financial Review, every Monday. Without fail, the AFR clearance rate statistics (which is provided by Australian Property Monitors), alleges a lower clearance rate than the figures claimed by the Real Estate Institute. This is largely because the REIV tends to ignore the substantial number properties that are not reported — almost all of those no-results actually have a result — that is, they are passed in’.
Crikey recently conducted its own survey of clearance rates in Melbourne (long considered the auction capital of Australia). In a weekend in which 519 properties were auctioned and the REIV reported a 68% clearance rate. This result was duly reported by the Sunday papers. The only problem is that figure was not correct.
Crikey’s own clearance rate study was based on the specific 228 properties that were listed in Fairfax’s Domain auction. While not an entire universe of auctions, it was a large enough sample to determine a satisfactory result and more importantly, was a fully self-contained set of data. Of the 228 properties that were listed for auction, 125 sold — equating to a clearance rate of 54%. That assumes the 38 properties that were not mentioned on Sunday, all failed to sell. Even if all the unreported properties were sold, the clearance rate would have been 65% — still below the REIV figure.
That weekend, Australian Property Monitors reported to the Financial Review that Melbourne’s clearance rate was 60.8% (a figure broadly in line with Crikey’s calculations). Substantially different to the result claimed by the REIV and reported by The Age.
The misrepresentation of clearance rates by real estate bodies is certainly not a new phenomenon. Back in 2007, Crikey reported that the REIV had undertaken similar jigging of auction numbers. The criticism drew a bizarre response from REIV CEO Enzo Raimondo. Similarly, respected real estate analyst Louis Christopher was effectively forced out of his role as CEO of APM back in 2006 after he said:
In my opinion [providing misleading data] is grossly unethical behaviour. Real estate news and information should be freely available, independent and not subject to a conflict of interest. And agents should be free (and obligated) to give data back to anyone and not be a pawn of anti-competitive behaviour.
Christopher had promised that in the interests of disclosure, APM intended to publish in full “all Melbourne auction results as one report on domain.com.au and on homepriceguide.com.au ahead of the print publications”. Fearing loss of real estate revenue, APM placed Christopher on leave and he soon departed to form the successful property research business SQM Research. (Ironically, a proportion of the revenue that Fairfax was trying to protect has been lost anyway, courtesy of Antony Catalano’s The Weekly Review).
High property prices benefit only a small section of the community (largely real estate agents, newspapers and owners of multiple investment properties) — it is no surprise that these privileged few are keen to ensure that the property bubble remains intact by all means necessary. The problem is many less-sophisticated property buyers, especially first-home buyers, are convinced to purchase property based on flawed data (and use very substantial amounts of debt). Leading newspapers have a responsibility to ensure that the information they provide to readers is as accurate possible — in continuing to use obviously flawed real estate institute data, our major papers are failing young property buyers.
As for believing what real estate agents claim, as Warren Buffett once noted, you should never ask your barber if you need a haircut.
Perhaps this might be an opportunity for Crikey to start a regular feature in the Monday edition.
Dear Adam
Thankyou for this power packed thought provoking article!!!
It just occurred to me and Julie why we never buy the Age Newspaper…thanks to you, now we know why…it just can’t be trusted and always seems to be telling us how to live our lives by the standard they themselves set…”MISINFORMATION”
And that man REIV CEO Enzo Raimondo. Is he the same Enzo who used to work with Chris Stabarakis from Real Estate Agent ” Coniatis Lyalls & Deceto “…if it is, then he must have been promoted up the ladder very rapidly. Salesman one minute and then CEO the next…sheesh!!! I wonder what skills and technique he possesses to gain such rapid promotion?…any ideas?
We would like to bring to your attention the REIV sanctioned practise of Vendor Bidding.
Julie and I both agree that this practise is borderline outright illegal..or at least the way it is implemented.
We have done a survey or two ourselves and have noted on all occassions at auctions that the bidder is never actually nominated or identified. Sometimes it is mentioned that one will be used, but still no precise identification of who that individual is….this is a very dangerous and deceptive practise indeed, particularly when unsophisticated buyers are involved.
Julie and I are interested in funding a Test Case in this regard, so if you happen to know somebody who has been adversely affected at an auction by this dubious VENDOR BIDDING nonsense, then please let us know.
Great article Adam!!!..there are some who say Julie & I are phycophants but I think we are just old fashion and believe in giving credit where credit is due.
Yours Sincerely
Kevin & Julie Harris
Re vendor bids: in Queensland registration is required by prospective bidders prior to the auction – during the open inspection before the auction they sign a registration form which is on display for all to see. If someone is not registered they cannot bid. Each registered bidder is given a paddle (like a ping pong bat) with a number; they display this for the auctioneer and the crowd whenever placing a bid. If the auctioneer makes a vendor bid it is clearly declared as such.
Having said that, the majority of auction properties seem to be passed in these days, the Brisbane market is currently flat.
There is absolutely no need for Vendor Bidding at real estate auctions and the application should be banned.
By applying a vendor bid, the real estate industry is saying the property might not sell under “normal” and open conditions without it. It’s a no brainer and open to dishonesty and misinterpretation. How can somebody bid on their own property?…think about that for a moment.
Glad to see somebody throwing down the gauntlet to REIV…damn overdue.
Vendor bidding does sound, on the surface, a weird concept. But, if you look at the two most common methods used to sell property, it does make sense. There is ‘private treaty’ where a property is marketed at a definite price – negotiations get underway, via an agent, to arrive at a compromise price. This is done behind the scenes and can be particularly unnerving for prospective buyers if two or three others are negotiating simultaneously. And the buyers can’t be sure there really are other buyers or if the agent is simply spinning a story to inflate their offers.
An auction is an open, public exercise in negotiating without a marketed asking price, it’s open-ended. When the auctioneer declares a vendor bid it is simply telling the bidders their ‘negotiations’ need to continue because they have not yet reached a price at which the owner is willing to sell. I don’t see a problem with this, it’s transparent, there’s no trickery, everyone knows the score. Often, at auctions, buyers hesitate to be the first to open the bidding, this can be tiresome when the silence drags on for several minutes, the auctioneer struggling to get things started. We’ve all seen this situation, it’s tedious. When the auctioneer makes a vendor bid to get things started it usually breaks the ice.
The problem was a few years ago when nearly all auctioneers took imaginary bids from the crowd and nobody could see how many real participants there were in the bidding process, it was confusing and frustrating for the buyers. With the registration procedure now in Queensland, auctions are a fair and legitimate method of selling/buying.