Auction vs Private Treaty

Action and private treaty are the two most common ways to sell a property. Private treaty is by far the more popular of the two and recent statistics indicate that only about 15% of homes in Australia sell under the hammer or what is also called the auction.

For a private treaty sale, you set the price and wait for someone to buy whereas at an auction, potential buyers bid competitively for your property at a nominated time and the highest bidder wins.

Both formats require similar investments in marketing and agent fees. In order to choose which format to use that best suits your property for it to sell for maximum price and in good time you need to consider the following factors.

  • Your type of property
  • The demand for your property type
  • Your pricing and
  • The time frame at your disposal between putting it out in the market and the time of sale.

Just like everything else, each format has its pros and cons, or call them “cautionary attachments”, that come with them.

Private Treaty

Pros

  • Most buyers opt for this type of format.
  • Only one interested buyer is needed to get the price you want.
  • You set the final sale price.
  • The negotiation process allows both sides more time to consider terms and conditions.
  • Terms and conditions are flexible hence both can achieve a win-win situation.
  • You can accept a higher offer if it comes in before signing the contract of sale.
  • There is confidentiality on offers so competing buyers will bid high for fear of missing out.

Cautionary Advice

  • The initial pricing might be wrong.
  • Excellent negotiation skills are required from both the seller and the agent hired.
  • Marketing and negotiations are critical.
  • The property should be fully ready for sale before stepping into the market.


Auction

Pros

  • Auction works well for unique homes that are difficult to price.
  • Auctions can create urgency for buyers to act.
  • The bidding process is transparent and competition drives the price up.
  • You set the auction date, reserve price, settlement date, and other terms and conditions.
  • Your reserve is not disclosed.
  • The sale is not subject to valuation, finance, or inspections.
  • You can sell the property before, during or after the auction process.

Cautionary Advice

  • You must aim your home to the correct market so as to make a sale.
  • A skilled auctioneer is a must and comes at a fee.
  • The market determines the sale price and this can go either way, high or low, depending on the demand.
  • A sale is not guaranteed. Statistics show that 20-40% of auctions do not end up in sales.
  • It is not an option for most buyers because the sale is unconditional and there is no cooling-off period.
  • There is no room for negotiations.
  • The reserve price if wrong can mess the whole auction up.
  • There is the risk weakening your future negotiating position if your property is passed at auction.

If you are still unsure which method is best for you, your agent is the ideal person to guide you in your decision making, particularly if they have a strong track record of selling homes just like yours. Have them provide evidence of their success using the sale format they recommend for your home.