Melbourne Market Good for Selling Houses by Auction

By Kristie Kwok on 6 Mar 2014
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Melbourne Market Good for Selling Houses by Auction

Auctions become more popular when the property market is performing well

Although the number of property auctions in Melbourne grew significantly in 2013, almost 70 per cent of real estate sales were still conducted privately. 

For those who are looking to put their house on the market in order to upgrade, downsize or cash in on capital growth, when and why should you consider using a property auction in the Melbourne market?

Method of Selling Houses by Auction Gains Popularity in a Strong Market

According to RP Data, the proportion of sales conducted through auction increased by 9.6 per cent for the 12 months ending November 2013.

This growth in selling property by auction is no doubt linked to a stronger Melbourne housing market in 2013, as evidenced by the 8.5 per cent growth in home values recorded by the RP Data – Rismark Home Value Index.

“Vendors are more likely to use auctions in a rising market because as property prices increase and supply tightens.”

As explained by this REIV publication, the use of auctions fluctuates in line with the market. Typically, when the market delivers strong price growth, the number of properties sold at auction increases. 

Competition Drives up Price of Property Sold at Auction

Vendors are more likely to use auctions in a rising market because as property prices increase and supply tightens, auctions provide a competitive environment in which all interested buyers can bid for the property.

It is hoped this competitive bidding will result in a sale price that exceed expectations.

“Speaking to an agent knowledgeable on your suburb of interest is a key step…”

As explained by Consumer Affairs Victoria, although auctioneers have different ways of conducting an auction, generally, they aim to encourage as many bidders as possible to compete, in order to achieve the highest possible price.

The absence of a price ceiling and opportunity for competitive bidding are big advantages associated with auctions. 

How Can You Tell if Auction Market Demand is Strong?

The clearance rate is a good metric to look at because it tends to fluctuate in line with price growth. 

Looking at this measure at a more granular level, for example by suburb rather than by the overall Melbourne market, would give a more accurate picture for your area of interest.

Selling Houses by Auction More Prevalent for Some Locations

Finding out the proportion of sales by auction in your property’s location is also important as preferred sales methods differ across Melbourne.  

Auctions are more prevalent in the inner city that the outer suburbs.

Speaking to an agent knowledgeable on your suburb of interest is a key step to understanding what sale method works best. Of course, attending auctions in the local area is another great way to gauge demand.

This way you can also pay attention to your property type and how it’s being sold in the area. Are the majority being auctioned or sold privately? What is the attendance at these auctions like? What is generally the final result?

For more information on property auction tips, how to auction your house and general selling tips, other useful online articles can be found on realestateview and REIA.

The information or opinions contained in the commentary are general in nature and should not be construed as investment advice or financial product advice. Any research or analysis contained within the commentary is specific to the execution of a purchase brief provided by a licensed adviser. Kristie Kwok is not licensed to provide advice on regulated financial products and the information should not be relied upon to in determining the appropriateness of SMSF property purchases.

About the Author

Kristie Kwok is a Street News writer and a fully qualified chartered accountant with a Bachelor of Accounting and Finance degree. Kristie has a passion for all aspects related to property. She also has a strong interest in the economy and financial markets. Kristie has worked for reputable corporates such as KPMG UK, UBS, Lloyds Banking Group and the Royal Bank of Scotland.

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