Auction versus private treaty: how to get the best result for your property

Deciding on the best method to sell your property is a major step in the selling process. It is a question you should always bring up and discuss with your real estate agent as your individual circumstances and the local market conditions will affect your decision.

In Australia, two common methods of selling property are by private treaty or by auction. Not sure which method best suits your property needs? Read on for our arguments for and against each method.

Selling by Private Treaty

Selling by private treaty is a popular method used to sell property in Australia and has been the most common method in Perth for many years. This method involves setting the desired sale price for your property, and then waiting for buyers to make an offer.

·         Pros

Choosing to sell by private treaty is nothing new. This method of selling is a tried and tested strategy, and many buyers are familiar with the way in which it works.

This method allows the seller to set particular sale conditions, such as the asking price and the terms of settlement. By selling by private treaty, there is flexibility on the amount of time your home is on the market, as there is no specific auction date.

Some buyers can find bidding in an auction setting a bit intimidating, and prefer to make an offer and negotiate on a private treaty sale instead.

·         Cons

If a buyer makes an offer on the property, they can make it contingent on specific factors. For example, buyers can make an offer which is subject to the sale of their existing property, their ability to obtain finance, and pending the results of building inspections. This creates a period of “cooling off”, in which time the sale could potentially fall through. If this happens, it can be frustrating for a seller and will mean the property is back on the market.

The number of days on market when selling by private treaty will depend on the prevailing property market conditions. Currently the average days on market sits at 66.

Selling by Auction

You’ve probably seen auctions featured heavily on television programs such as Channel 9’s The Block, and it seems that this method has taken off in WA in recent times with December 2015 recording Perth’s highest jump in auction activity in fifteen years!

At an auction, potential buyers place bids against each other in an effort to secure the property. The seller sets their ‘reserve price’, which is the lowest price the seller will agree to sell at. The reserve price is disclosed to the auctioneer, prior to the commencement of the auction. At the auction, the successful buyer is the highest bidder at or over the reserve price.

·         Pros have just released data that reveals auctions in the Perth metropolitan area achieve a quicker sale than the private treaty method, with an average of 40 days on market.

“Auctions are becoming more familiar to West Australians, and Perth sellers are increasingly more open to this selling method. While private treaty remains the most common way to sell a property in Perth, auctions did hit a 15 year high in December 2015, with 3.1 per cent of all sales in the metropolitan region happening under the hammer,” says REIWA President, Hayden Groves.

When selling by auction, an intense marketing campaign is conducted over a 3-4 week time frame (as opposed to a 12-week marketing plan if selling by private treaty), with the aim of delivering maximum exposure to the property during a time frame in which the property is most likely to sell (the first few weeks on the market).

The property is listed and marketed without a price, which acts to attract a wide pool of buyers with the aim to create an atmosphere of competition. Marketing a property without a price prevents buyers from naturally discounting the asking price, instead forcing buyers to base their price expectations on the property’s merits.

As the seller, you are in complete control; dictating the terms of the contract such as the settlement date and the reserve price. The seller will get a cash, unconditional offer if the property is sold before or on the auction day, meaning the deal is less likely to fall through.

Using the auction method, you have three opportunities to sell; before, at or after the auction. Buyers can make offers prior to the auction to avoid competition on auction day or if they’re not able to attend. On the auction day, multiple bidders compete for the property. The seller also has the opportunity to keep the price moving upwards by placing a ‘vendor bid’, whereby the seller places a pre-agreed upon number of bids (below the reserve price) during auction proceedings. The number of bids are announced by the auctioneer prior to the commencement of the auction. If the property is passed in at auction (there was no successful bidder above the reserve price), this gives conditional buyers the opportunity to compete and enter into negotiations for the property.

·         Cons

As bids made at auction are often unconditional, it means you could potentially be missing out on buyers who would make an offer subject to sale or finance.

Not all properties will perform well at auction and this will depend on local market conditions, the type of property, and the how much interest and competition will be generated by the property. This is why it is important to discuss with your enlisted agent to see if this method is right for you.

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