Percentage sales by auction (SBA%™)
What is the SBA%?
SBA stands for Sales by Auction. The SBA% is the number of properties
listed for sale by auction as opposed to other sale methods, calculated as a percentage.
So if there were 10 properties
listed for sale and 3 are to be sold via auction, then the SBA% would be 30%.
Why is the SBA% important?
Imagine you're a real estate agent trying to sell a property for your client.
You get an offer from a buyer and pass this on to the owner. The owner comes back with a
counter-offer and you pass this on to the buyer.
This "back and forth" goes on for a bit when you receive another offer from a different buyer.
This is higher than the last offer made by the prior buyer. You pass it on to the owner and the owner makes
a counter-offer. You pass that counter offer on to the buyer and also let the other buyer know there is another
bidder and they have offered higher.
Things get really messy when a third buyer enters the ring and starts making offers! You now
have to inform the owner and 3 buyers. You're going back and forth like a piston in a rev-head's hot rod.
What's a real estate agent to do? How about an auction?
Real estate agents encourage their clients to sell via auction in markets where demand exceeds supply.
That makes perfect sense in a market where demand exceeds supply. But what if supply exceeds demand?
As the agent you would spend a lot of time and money advertising the property to
ensure as many potential buyers know about the auction. But if supply exceeds demand, it's possible nobody will turn up.
So the strategy that works well in a market where demand exceeds supply
fails miserably in a market where supply exceeds demand.
As investors you want to buy in markets where demand exceeds supply since it is
the only way in which prices rise. One way to gauge if demand is exceeding supply is to
calculate the percentage of properties being listed for sale by auction as opposed to those listed
"by private treaty"
The SBA% is another stat investors can use to understand the nature of supply and demand in a property market. When hundreds of thousands of dollars are at risk, can you really afford to ignore this indicator?
The SBA% is one of the statistics incorporated
into the DSR+.
Is the SBA% reliable?
An accurate SBA% requires a decent number of properties listed for sale. If there is only one property listed for sale, then the only possible values for the SBA% are 0% or 100%.Unfortunately, in many markets where demand exceeds supply, supply is the problem. That means the SBA% may be inaccurate in the very markets it is intended to identify. You may get a false positive indication from the SBA% in poor markets.
For example, there may be only 10 properties for sale in a very poor market. But 6 properties are listed for sale by auction.
Two of the six owners have watched a TV program about auctions. They want to be part of that thrill despite the warning of their agent against doing so in this market.
Another 2 properties have "unique" attributes such as heritage listing or a combination of residential and commercial.
The last 2 properties are mortgagee repossessions. The lender wants them sold by this date come hell or high water.
So the SBA% will be 60% in this case which is quite high. But it is a poor market.
You can easily check for false negatives like this by examining the SBA% for tell-tale signs of low volume. These are usually neat, well known percentages like:
20%, 25%, 33%, 40%, 50%, 60%, 67%, 75%, 80% and 100%
For example, 40% could be 2 out of 5 listings. This is low enough volume to be inaccurate. But one of those 5 listings might have a reason for not being SBA that is not based on market supply or demand. Remove that property from consideration and the true figure is 75% (3 SBA out of 4 listings).
Base data and other sources
Some alternative sources for this kind of data include: