Should you go for a private treaty or auction when selling your property and what are the pros and cons of each method?
What is private treaty?
Private treaty is the type of sale you usually see around the place. The seller will set the price or price range they want their house to sell for, and buyers will submit offers based on this price. Buyers don’t necessarily have to offer the advertised price, as the sale price can be negotiated between seller and buyer. This is usually mediated by a real estate agent, who will try to achieve the best outcome for both parties.
Pros of private treaty
- Flexibility with negotiating
- You may get more buyer interest as some buyers may be intimidated by auction and the fact that there is no cooling off period. In private treaty, buyers can consider offers carefully and make offers subject to specific terms, e.g. finance.
- Sellers who don’t have an urgency to sell can be better off with a private treaty as they aren’t working towards a specific date like in auction.
- Marketing costs for a private sale are usually lower than auction campaign costs.
Cons of private treaty
- Your property could take longer to sell. This is because there is no end date and therefore no sense of urgency for buyers.
- You will have to deal with open homes and inspections
- If the pricing is wrong and you sell under market value, you lose money. In a private treaty, the price can be negotiated down instead of up, meaning your property is less likely to sell above your asking price.
- Private treaty sales are subject to a cooling off period, meaning that the buyer has the opportunity to change their mind and get out of the sale without losing their deposit. In Queensland, this cooling off period is 5 days.
What is an auction?
An auction is a public sale, where prospective buyers gather at a particular time to bid on a property. Basically, the highest bidder on the day buys the property, given their bid is over the reserve price. The reserve price is the price set by the seller which is the minimum price they will sell for.
Pros of auction
- There is not only an opportunity for the vendor to sell at auction, but the property can also sell before auction and directly after auction.
- Sellers have the protection of a reserve price, which they have the ability to set at their (and their agent’s) discretion prior to the auction day.
- The auction process creates urgency, which forces buyers act quickly and make a decision on the day.
- There is no price ceiling as auctions encourage buyers to bid competitively.
- There is no cooling off period, meaning that once the buyer has purchased the property at auction, they cannot back out of the sale without forfeiting their whole deposit.
Cons of auction
- Auctions can be more expensive as the vendor has to pay for the marketing campaign and the auctioneer.
- The property may not sell at auction. Certain types of properties sell better at auction, so it’s important to consider your options. For example, units or townhouses that are in a block of identical stock would sell better with private treaty, particularly if there is more than one sale at the same time.
- You may limit your prospective buyer pool at auction because buyers who want to purchase subject to certain terms are more likely to make offers on a private treaty sale.
- You might feel pressured to reduce the reserve price on auction day.
What factors need to be taken into consideration?
- Your location. Capital cities such as Sydney or Melbourne have high auction clearance rates and work well because buyers are familiar with the auction process and won’t be scared off by it. Outside of big capital cities, auctions are less common and you may be better off going with a private treaty.
- The type of property. Prestige or unusual properties tend to generate a higher level of interest at auction, so you need to consider the type of property you’re selling. If your property is a unit or apartment and there is a lot of similar stock on the market, private treaty is probably your best option.
- The level of competition. When buyer interest, and therefore competition, is high, you may be more inclined to opt for auction. Whereas, if buyer interest is low, private treaty might be a better option.
There are other factors you need to consider in the decision to go for either private treaty or auction, so talk to a local real estate agent to discuss your situation. If you have any questions, you can contact Anthony Oddo on 0430 028 254 or [email protected].