How the new compliant banks are cutting auction clearance rates - and what you can do about it

The Royal Commission has had a dramatic impact on the property industry and auction clearance rates. How can your agency survive the downturn?

The waves caused by the Banking Royal Commission have been felt by many industries across Australia and the real estate industry is no exception.

With property costs being so high, there are few people who purchase a home without requiring assistance from a lender. The lending landscape has been impacted dramatically by the Royal Commission and this has flowed on to the property industry.

Auction results, in particular, have been affected, to the immense frustration of real estate agents, auctioneers, sellers and even buyers who are finding their hands tied when it comes to accessing finance.

Auctions: A Royal Commission Casualty

Tightened lending criteria means lenders are being more cautious with pre-approval, promising people lower amounts and requiring more paperwork than they did pre 2018. As a result, many bidders are showing up at auction with lower budgets and bringing house prices down from the dizzying highs of the last few years.

What’s more, in the changed market and with pre-approval taking a long time, many buyers can only put in private treaty offers which are subject to finance. Without pre-approval, they’re not confident to bid at auction. They may put an offer in beforehand or after but they will add a clause which will void their offer if the bank says no.

Towards the end of 2018, auction clearance rates in Melbourne slipped to less than 40 per cent. According to Domain, this didn’t mean failure to sell for most properties, as negotiations continued after the hammer had fallen. Buyers are either seeing the opportunity to try a low offer, or they’re simply not able to secure finance in time to bid.

How to boost auction clearance rates

Real estate has always been about market demand and current times are no different. Some agents are getting around financing issues by giving more lead time prior to an auction. Instead of four weeks, they’re extending campaigns for six or even eight weeks, allowing buyers to get in touch with their mortgage broker or bank to confirm finance.

Alternatively, some vendors are approving ‘subject to finance’ bids at auction. This can work to push the price up, however, it does carry the risk of disappointment and ending up back at square one if approval falls through.

The secret to success during a downturn: diversity

When you find your agency toughing it out through a real estate slowdown, it pays to have more than one iron on the fire, so to speak.

For some, it’s a matter of ‘if you can’t beat them, join them’ when it’s a buyer’s market. This means adding buyers agent to your job title. The commission may be less but at least you’ll be generating income.

Another strategy when hammers are falling without a sale is to focus on building your rent roll. You could do this yourself by launching an advertising campaign or reaching out to stratas in the hope of gaining new business, however, this will involve a lot of groundwork and pavement pounding. A better strategy may be to purchase a smaller rent roll to keep cash flow steady.

Do some research to see how many properties your agency can take on without having to bring in extensive extra resources. Generally, one property manager can look after up to 150 properties on their own (any more and they may find themselves spread too thin).

Smaller rent rolls are available with anywhere from 20 to 200 properties. Gradually building up this side of your business can keep your admin team busy and generate the income your business is missing out on while it waits for the market to speed up again.

BDH Solutions have been buying and selling rent rolls for over 30 years. Keep up with our latest listings here.