Auction Vs Private Treaty

When selling a property, vendors are faced with many important decisions. The choices you make for the sale of your property will ultimately impact the sale price, time on the market, and overall experience.

Whilst there is a variety of ways in which you can offer a property to market, auction and private treaty are the two most common.

The Sydney market, and the Eastern Suburbs in particular, has come to expect that the majority of quality offerings from genuine vendors are submitted to public auction.

The auction process is a three-part process where the property can sell at auction, prior to auction, or shortly after the auction. An auction places a time frame with a set deadline on the selling process which puts pressure on genuine buyers to make an offer. Often properties with set auction dates sell well before the auction if the desired price is achieved and vendors are satisfied.

An auction ensures that negotiations are always in an upward direction, rather than setting an upper limit by placing a set price on the home. Auctions are a way to create competition amongst genuine buyers and it only takes two interested parties to drive the price up in a bidding war. In some cases, this could lead to hundreds of thousands of dollars above vendor’s original expectations.

With a private treaty sale a price is set. If the price is too high you will have no interest from buyers and the property can sit on the market for an indefinite period of time. Once a property has been on the market for too long buyers tend to lose interest in the property. It creates a perception that something is wrong with the property.

On the other hand, if the set price is too low, you could undersell the property. A buyer will make an offer and it’s going to be sold, with no competition to drive up the price to true market value or above.

With private treaty there is no sense of urgency. The private treaty method is an open-ended process with no certainty as to when the property will sell.

Other things to consider in a private treaty sale, are the opportunities lost while your home sits on the market. Has there been another property that you missed out on buying because your home hasn’t sold?  And there is the inconvenience of having your home always “inspection ready”. A set auction date brings the processes to a closure and allows you to plan for the future.

In a competitive auction environment, you never know where the sale price could end up. Additionally, the auction process creates hype and urgency around the sale and therefore a buyer’s fear of missing out will motivate them to act. An auction date brings the negotiation to a head and forces a buyer to make a decision.

Additionally, when a property is sold at auction, there is no cooling off period. It is an unconditional sale where the purchaser cannot rescind without severe penalties including forfeiting of deposit.

The auction clearance rates have recently dropped and this may be deterring people from taking their property to auction, however what needs to be understood is that the reported clearance rates are only an indication of what happens at the actual auction. They do not take into account the properties which sell shortly after. If they did look at this data, the clearance rates would be much higher than being reported. It is not uncommon to sell a property to the highest bidder in the 24 hours following an auction. An auction draws all the key parties into a room allowing the Agent the best opportunity to negotiate a successful sale.

There is no such thing as a right or a wrong property for auction. Any property is suitable for auction when managed properly.

For any further advice please feel free to contact our office. It is always our pleasure to assist you.

Paul Biller