When selling a property, you can choose between an auction or a private treaty. In Australia, a common belief is that selling property through the auction will secure a higher price, and selling through a private treaty is less stressful. This article will explain some of the differences between the two and provide enough information to make an informed choice on which option is best suited for you.
Private treaty vs public auction
What is a private treaty sale?
A private treaty is where you will often nominate a price for your property after a discussion with a real estate agent and then negotiate a sale price with potential buyers. For example, you may list a property for $650,000, comparable to other recently sold properties in the area.
After the property is listed, prospective buyers will contact you, and after an inspection, they may offer a price on what they think it is worth. If several buyers are interested, you may end up negotiating a higher price than it was listed. After an agreement is in place with both parties agreeing to the price, the property is considered sold.
What is an auction sale?
A public auction is where buyers are notified of a time and place where they can bid on the property. On the day of the auction, the sellers usually nominate a reserve price, and this information is kept from the bidders. The listing agent will open the bidding at a reasonable target, and buyers will call out their bids for the property. After all the bids are taken, the final bidder secures the property provided the reserve price has been met.
In an auction sale, there are usually two outcomes. For example, a property is listed for auction with a reserved price of $650,000, and after the bidding was finalised, the last bid was for $635,000. As the final bid has not met the reserve, the final bidder can negotiate with the seller to increase their offer. The final bidder can increase their offer or stand firm. The seller can decide whether they want to accept the final bid. When a property fails to sell at auction, it is usually listed for sale as a private treaty, or the seller chooses not to sell the property.
Alternatively, the final bid on the property can reach the reserve price, and the property is sold to the highest bidder. Many strategies are used when attending an auction, and some people will not bid until the real estate agent announces the reserve price has been met.
What is an auction sale?
A public auction is where buyers are notified of a time and place where they can bid on the property. On the day of the auction, the sellers usually nominate a reserve price, and this information is kept from the bidders. The listing agent will open the bidding at a reasonable target, and buyers will call out their bids for the property. After all the bids are taken, the final bidder secures the property provided the reserve price has been met.
In an auction sale, there are usually two outcomes. For example, a property is listed for auction with a reserved price of $650,000, and after the bidding was finalised, the last bid was for $635,000. As the final bid has not met the reserve, the final bidder can negotiate with the seller to increase their offer. The final bidder can increase their offer or stand firm. The seller can decide whether they want to accept the final bid. When a property fails to sell at auction, it is usually listed for sale as a private treaty, or the seller chooses not to sell the property.
Alternatively, the final bid on the property can reach the reserve price, and the property is sold to the highest bidder. Many strategies are used when attending an auction, and some people will not bid until the real estate agent announces the reserve price has been met.
What is the main difference?
The main difference between an auction and a private treaty is that a private treaty will have an asking price, buyers can negotiate based on this figure, and a sale can be accepted at any time. In an auction, bidders are limited to making their offer on a specific day, and the reserved price is not usually known until after the auction.
Pros and cons of selling via private treaty sale
Pros
- Negotiable Price – in a private treaty sale, the buyer and seller can negotiate the price and the sale can include caveats such as securing financing and settlement dates.
- Flexibility – the buyer and seller can agree to specific terms such as an extended settlement date. These negotiations can vary from buyer to buyer and may be why one buyer is selected over others.
Cons
- Time to Sell – as there is no set sale time, prospective buyers may take more time before placing an offer.
- Cooling-off Period – many private treaties are subject to a cooling-off period, and potential buyers can take this time to change their minds about the sale.
- Subject to Clauses – clauses put in place for the sale to be finalised (e.g., sale subject to a building inspection) can delay settlement or may end in the buyer withdrawing from the sale.
Tips for a successful private treaty sale
Think carefully about the price you set as it will form the basis of your offers. You can rely on the advice your real estate agent provided, but you can also do some research in the area. If you set a price too low, you’ll miss out on value, and if you set one too high, you may not receive offers.
Marketing can help speed up the sale of your property. At a minimum, your agent will list your home for sale on the internet and on their website. Additional advertising may come at an extra cost, but often it is a good idea as it’ll help sell your home faster.
Research your real estate agent and ensure you select one who is up to the job. Check-in with a few real estate agents and read through their fees and what they can offer you. Ask about their sales strategies and their expected timeframe to sell your home.
Pros and cons of selling at auction
Pros
- Competition – auctions create a sense of urgency among the buyers, and they may feel if they don’t act, they may miss out on the property. This competition can help to drive up the sale price during the auction.
- Protected by the Reserve – as you can set a reserved price, you will not have to settle for a bid lower than what you expect.
- No Cooling-off Period – if the highest bidder goes over the reserve price, they are obligated to purchase the price, which can mean you get a fast sale.
- Sale Not Subjected to Clauses – buyers must complete searches and inspections before the auction day, which means that sales clauses are not needed for sale.
Cons
- Higher Costs – auctions require an increased marketing budget to ensure a good turnout of buyers; you’ll also require the services of an auctioneer in addition to your real estate agent.
- Eliminates some Buyers – some buyers are not comfortable attending an auction or may not be able to meet the buying conditions.
Tips for a successful public auction
Setting an appropriate reserve is the most critical aspect of an auction. The reserve must be the minimum amount you’d except for the property. Work with your agent and be clear about your expectations of the auction and the total value of what you think your property is worth, an excellent real estate agent will tell you if your valuation a good or not.
The contracts for sale need to be drawn up before the sale commences, detailing the transaction and the transfer of ownership. The contract will include details regarding if it is an unconditional sale and determine what type of deposit you expect from the buyer.
Choose an auctioneer that knows the area well and ask them about their selling strategies. The more knowledge they have of the area can help them target the auction to the correct type of buyers.
Which is the right option for you?
Talking with an experienced real estate agent is the best way to determine which option is best for your property. Real estate agents will usually consider the location, property type, market conditions, and selling timeframe when deciding which option is the best for selling your property.
Discussing sales tactics with several real estate agents will provide you with a good feel for how best to proceed in selling your property. Real estate agents will often have the same motivations as the sellers they work for and will rely on their knowledge of the property area to decide which method garners the best results.
