Three of the most important things you need to research before buying a house

Every property expert recommends research prior to purchasing a home, but deciphering data can be challenging for buyers.

Each indicator’s importance differs and the usefulness of data depends on whether you’re buying, selling or investing.

Median property prices always get the most attention, but buyers should also pay attention to these key measures.

Auction clearance rates

The auction clearance rate is the percentage of properties that are sold at or prior to auction, or pass in but sell on the same day.

It’s considered a barometer of sentiment, showing whether buyers are meeting sellers’ expectations and potentially indicating which way prices will move.

“Auction clearance rates are a high frequency indicator,” Domain research analyst Eliza Owen says. “Because a lot of auctions take place across Sydney and Melbourne each week, the auction market provides a large enough sample to gauge market confidence on a weekly and monthly basis.”

Preliminary auction results are reported each Saturday evening, and revised by the end of the following week once late results filter in.

As a general rule, a clearance rate below 60 per cent indicates weakening confidence and often coincides with falling prices. A rate above 70 per cent is indicative of more positive sentiment and better conditions for sellers.

Clearance rates aren’t as useful outside Sydney and Melbourne, Owen says. “This is because a smaller portion of the market goes to auction in other states, and the legal parameters around auctions are different.”

Average days on market

This measures how long a typical property takes to sell via private treaty, from the date it’s listed to the date it’s sold.

The average time it takes a Sydney home to sell is 73 days, according to Domain Group data for the year to April 2019. That’s 38 per cent longer than the average for the previous 12 months. In Melbourne it’s 61 days, 11 per cent longer than the previous year.

“Higher days on market generally occur when there is an excess of supply on the market, and prospective buyers have more choice,” Owen says. “This creates greater bargaining power, which extends negotiating processes and campaigns.

“If the number of days on market is falling, it is an indication that demand for property is rising relative to supply, and the seller may have more power in price negotiations.”

Demand can vary in individual areas, according to Mayfield Property Buyers director and buyer’s agent John Carew.

“Things can be hidden in the law of averages and there’s markets within markets,” he says. “As a buyer or seller you need to have quite a hyper-local focus.”

Suburb profiles reveal average days on market for different property types in each area, which is important when upgrading or targeting homes outside your suburb.

Carew says overpriced properties remain on the market for longer, and begin to appear “stale”. But when campaigns drag on, buyers’ bargaining power can improve.

“As a buyer, that’s potentially an opportunity to pick up a really good property at a good purchase price.”

Price per square metre

Estimating property values can be challenging, and inspecting homes outside your budget wastes time and energy.

Examining comparable properties gives buyers the best indication of a home’s value.

The number of bedrooms, bathrooms and parking spaces affect the value, but the land size – or for apartments, the floor space – is often the major factor.

“The price per square metre is a really good scientific baseline that buyers should use to give themselves a good guide,” Carew says.

Buyers can examine sold properties in the area for the past six months and divide the price by the size to work out the square metre rate.

“Start to look at comparables,” Carew says. “Based on this subject property, what did those properties sell for per square metre, and are they superior or inferior?”

This measure does have its limitations, according to Anna Porter, founder of wealth advisors Suburbanite. She says square metre rates can’t be applied broadly to residential properties as with commercial or industrial properties.

“Rates per square metre can change quite significantly when you’re looking at bigger properties,” she says.

The condition of the home, its layout, aspect, natural light, views, recent renovations and street presence also need to be considered when determining value.