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Auction vs Private Treaty - which sales method should you choose?

Auction vs Private Treaty - which sales method should you choose?

The decision to sell your home may feel like the end of an era, but it’s only the start of the decision-making process. Once you’ve chosen a real estate agent to help you sell, the next decision is how to sell it. Is an auction the right method of sale for you, or would sale by private treaty be better for your needs?

There are several things to consider, from the nature of the property, to whether you need a quick sale. First, though, it’s important to understand the differences.

Auction vs Private Treaty

Sale by private treaty occurs when your home is advertised for sale and private offers are invited. Would-be buyers don’t know whether anyone else is bidding, and negotiations can stretch over several days.

If you’re selling your home by auction, all the bidding happens at once. A licensed auctioneer will set a time and date for the auction, and interested parties turn up and bid. If the bidding exceeds your reserve, which is the price you have determined to be the minimum at which you will sell, the highest bidder wins. If the bids don’t meet your reserve, the property is ‘passed in’ and you will have the chance to continue negotiations privately.

A sale by private treaty entitles the buyer to a cooling off period. The length of the cooling off period is determined by legislation and varies between the various states and territories. It also allows the parties to negotiate special conditions. These might include a sale subject to the buyer obtaining finance or selling their own home. If the condition isn’t met, the buyer can step out of the contract without penalty.

By contrast, sale by auction means an unconditional sale. The cooling off period is waived, and the sale is not subject to any special conditions. A deposit is due immediately on signing of the contract.

Certainty vs Flexibility

If you want the certainty of an unconditional sale, sale by auction may be the best plan for you.

As the seller, you determine the terms and conditions of the sale, and can set the settlement terms to suit you. You are free to negotiate settlement terms with potential buyers prior to the auction if you think that will encourage people to buy, but once the auction is won, the buyer is bound to those terms.

Once an auction is successfully won, the buyer must be ready to exchange and able to pay a deposit. They are expected to be able to settle on the day set out in the contract.

As the seller, this eliminates the uncertainty of waiting to see if the bank will lend your buyer the funds they need, or if the building report will come back to their satisfaction.

On the other hand, if you don’t mind extending some flexibility to the buyer, a private treaty sale may widen your pool of purchasers. It’s very possible that a potential buyer would be happy to pay a little more for your home if you agree to the purchase being subject to the sale of their existing property, or a long settlement period. Sometimes, what’s important to one party isn’t the main issue for the other one, and the ability to negotiate terms means that everyone wins.

Bear in mind, too, that because you’ve chosen auction as your selling method doesn’t mean you can’t sell the home beforehand. It’s not uncommon for someone who has inspected your property to make an offer prior to the auction. If you’re happy with that price, you’re free to accept it on the spot.

If the home is passed in because nobody bids a high enough price, you can also continue negotiations after the fact. Your auctioneer will talk to the highest bidder and see if they’re willing to come up and talk to you about whether you’re willing to accept a slightly lower price. You can say no and continue to market the property, but if you decide on the day that you’d rather complete the sale process you can do so.

Competition v Cost

In both cases, you have the costs of marketing the property and preparing it for sale. If you’re selling by auction you will also need to retain the services of a licensed auctioneer. Usually there is a cost associated with this.

However, selling at auction can often mean that your property achieves a better price. This can see the cost of an auctioneer pay for itself very quickly.

On auction day, emotions can run high. As a seller, you’re hoping that the sense of competition and urgency will persuade buyers to up their bids, so you can achieve a fantastic price. That often proves true, but not always. Whether it’s likely to in your case depends on a couple of things: the market conditions and the nature of the property.

Market conditions

In a hot housing market, auctions do very well. When properties are being snapped up left right and center, buyers start to worry that they’ll never find anything. Add that sense of urgency to the auction mood, and buyers are far more likely to talk themselves into adding a few extra thousand to their upper limit, so they can finally move.

In a more depressed market, however, buyers hang back. They’re less likely to rush into a purchase because they know that there are plenty of other houses out there if they don’t get this one. In this case, a private treaty offers them a chance to think about it and may incline them to sign on the dotted line.

Type of property

Is your house unusual? Perhaps it has character details, or a great location, a great story or an unusually large block. If so, it’s easier for the auctioneer to create a sense of urgency. Miss out on this one, the crowd is told, and you’ll be waiting a long time to find something as good again.

On the other hand, if you’re selling a unit where there are multiple options similar on the market, it’s very easy for buyers to get a feel for the average sale price. These days buyers can do extensive research on recent sales in the area, so if they know what other units in your block have sold for in recent months, you’re unlikely to get more at auction. In this case, a private treaty allows you to negotiate those other conditions to see if you can get the price up in return.

Every property is different, and your needs and expectations are unique. An experienced agent will be able to help you decide whether an auction or private treaty sale is best for your needs and will get you the best price.

Want to find out which method is best for you? Talk to the team at Peter Blackshaw Real Estate today.

Blackshaw Corporate

27 Bougainville Street
Manuka ACT 2603