Sellers still gain more at auction, but premium narrows in Melbourne and Sydney

Sellers in Melbourne were likely to benefit the most, with an 8.9 per cent premium over the highest offer before auction, based on a rolling 13-week median. Sellers in Sydney had a slightly narrower gap at 8.1 per cent, while nationally the difference was only slightly less, despite much smaller, more volatile markets in Brisbane, Perth and Adelaide.

The two cities traditionally see a seasonal bounce in auction premiums. Melbourne peaked at 13.3 per cent in October 2021 and Sydney at about 11.5 per cent in February 2022, but both have failed to regain that ground this year as the market deals with successive rate hikes, legislative changes and a cost-of-living crisis heading into the spring auction period.

Ray White chief economist Nerida Conisbee said that while the gap was narrowing, an auction remained the most transparent way to arrive at a price for vendors and buyers. "I think that's important at the moment," she said. "Because we have quite a significant mismatch between what owners are wanting for their properties and what buyers are prepared to pay." She attributed the narrower premium across both markets to a general lack of bidders. "When you have less competition, [the] gap narrows," she said. "It's definitely the case that if you're a buyer, you've got time, and there's a lot less competition."

Max Wagschall, an agent and auctioneer at Sydney-based Murphy Residential, expected the premium to shrink even further by the end of the year as vendors and agents increasingly viewed "testing the market" at auction as a risky proposition. Accepting an early offer probably looked more attractive when sellers were unsure demand would meet their reserve, he said. Wagschall described the auction as part of a "process of education" for vendors, with houses that failed to sell on auction day often selling within the following fortnight, "because you've spent four or five weeks finding out where the [price] level actually is".

Clearance rates in both cities remain below 60 per cent, which broadly correlates with a balanced market. Sydney's preliminary auction clearance rate was 43 per cent last week and Melbourne's was 54 per cent, as reported by Domain. Conisbee said Ray White data still showed a sale was more likely within 45 days of listing if the property went to auction, even if it failed on the day, compared with selling via private treaty. "A property that is on market for a long time does tend to lose value," she said. "And days on market are starting to increase quite dramatically."

Melbourne-based auctioneer James Pilliner, at Nelson Alexander in Fitzroy, agreed that an auction was probably the best way for vendors to achieve the best price, but he saw an element of self-selection in which homes went to auction. "We would advise someone to sell by auction if they had a property that we thought could generate three or four potential bidders in the same four-week cycle," he said. If that level of interest was not realistic, he recommended another method, and for vendors who had already bought and needed to sell, he urged them to weigh the risk of not selling on auction day against any reasonable prior offer.

Jason Lien of independent Melbourne auction consultancy The Auctioneer said he had experienced a 90 per cent drop-off in the number of auctions he and his partners were running, driven by a lack of bidders even amid falling house prices. "There's not a lot of demand, and there's probably a bit of supply sitting around," he said, which could motivate vendors to accept an early offer. But for the right property, he thought an auction was still likely to get the best result. "The best auctions are usually ones where there's literally two people who really want it," he said. "They become irrational ... it's not always logical thinking."