How to decide between auction and private treaty

How to decide between auction and private treaty

How to decide between auction and private treaty


POSTED BY John Ireland ON 18 Dec 2020

Now you have decided to sell your home, the question is how will you sell it? Take a look at the pros and cons of selling at auction vs private treaty.

With the local property market on the Peninsula stabilising in 2018, many home vendors are confused about which selling strategy to choose. Should you sell at auction or via private treaty?
The answer I give when I meet with clients is “it depends”.

Different strategies have advantages and disadvantages in different situations. This is why I prefer to devise individual sales strategies tailored for the needs of each client, depending on their situation, their property and the demand from the current market.

Until I have met with a vendor and gained a true understanding of their situation and their goals, I can’t advocate strongly for either selling at auction or via private treaty. However, I’m happy to provide some general information about each strategy, to give home sellers some insight into the different options available to them.

Selling at auction

How it works

An auction is a public event where potential buyers bid on your property. It is essentially a competition, which results in your property being ‘won’ by the highest bidder.

With advice from your agent, you set a reserve price before the auction date. This is the lowest value you are prepared to accept for your property. This price should be realistically based on local market figures. Bidders cannot bid lower than this price but they can continue bidding as high as they like until someone outbids everyone else. If your reserve price is not met at the auction, you could still make a sale – usually the highest bidder gets the right to negotiate with you first after the auction has been held.

Auction can be a wise strategy if your property is unusual, or if it is located in a prestigious and highly desirable area such as Avalon Beach, Palm Beach or Clareville. The popularity of the area can help to push the price up higher than the market value.

Selling at auction also depends on the current number of buyers on the market. To create a healthy bidding war, you need several parties who have their heart set on securing their new home.

Pros

  • The excitement of the event creates a sense of urgency and motivates buyers to bid higher.
  • As the auction is set for a specific date, it is ideal for vendors looking for a fast sale.
  • There is also no cooling-off period at auction. The buyer has to be ready to pay the deposit and sign the contract. Otherwise they may have to pay you damages.
  • The marketing strategy that accompanies an auction reaches out to as many potential buyers as possible before the event. This means buyers can make offers to you in advance – you could even end up selling your property before the auction has taken place.

Cons

  • Auctions tend to be more expensive than selling via private treaty. The auctioneer needs to be paid and the extra marketing involved also comes at a cost. If your reserve price isn’t met on the day, these costs can’t be refunded, leaving you out of pocket.
  • Not all buyers enjoy the auction process. Some find the open competition off-putting. This means you are losing out on an unknown number of potential buyers who may or may not be prepared to pay more than the highest bidder at auction.

 

Selling via private treaty

How it works

Private treaty is the most common way to sell property. With the help of your real estate agent, you set a price that you would like to receive for your property. Again, this should be guided by current market values. Interested buyers then negotiate with you, usually via your agent, to achieve a sales value that both parties are happy with.

When you agree to accept a buyer’s offer, you then enter into a contract with them. The buyer pays a deposit and has a cooling-off period, which enables them to do last-minute checks before the sale becomes final.

Pros

  • Selling this way can be a less stressful process as it gives you more control over the outcome. You can take your time deciding whether or not to accept an offer. If you decide you’re not happy with it, you can reject it and wait for a better one.
  • You will attract buyers who are not keen on the auction process. These tend to be more serious about their intentions – some bidders at auctions simply get carried away in the excitement of the event.
  • Less marketing is required for sales by private treaty so your upfront costs will be less.

Cons

  • Sale by private treaty can take quite a long time so it’s not always ideal if you need to sell quickly.
  • Sometimes, homes sold by private treaty sell for less than the listed price. It is up to your agent to price it right in order to receive the most offers and still achieve a satisfactory outcome for you.
  • A buyer can pull out of the sale during the cooling-off period, which leaves you back at the beginning of the process. However, it is becoming more common for cooling-off periods to be shortened or waived altogether.

 

Private treaty or auction: Which strategy should you choose?

This depends entirely on your situation, and what you feel most comfortable with. There’s no reason why you can’t change your strategy if one isn’t producing the right results for you.

The most important thing is to consult a reputable, experienced agent who can advise you on the best strategy for you. I’m always happy to talk to local home sellers wanting information and advice about selling their property and to devise a plan which I believe best reflects the current market.