Auction Vs Private Treaty – Which Is The Best Method Of Sale?

Auction Vs Private Treaty – Which Is The Best Method Of Sale?

21 April 2017

As an agent who works in a marketplace where properties are sold predominantly by private treaty (ie. with a fixed asking price and no set sale date), I’m still often asked about the auction method of sale.

In my experience, the majority of agents are predisposed to either one method or the other – Some swear by auction and want to auction everything, others are almost allergic to it and recommend the private treaty method almost without variation. There are precious few who are able to remain calm and objective enough to assess each property (and the seller’s motivation to sell) on its merits and recommend a sale method that specifically suits that situation.

AUCTION

I am neither pro-auction nor am I anti-auction. I believe the auction method of sale is just one of the tools we have at our disposal and if used correctly and applied when the situation warrants it, then it can also be a highly effective one. But to push the auction method regardless of whether it is suitable for that particular property is just silly. Some agents like the auction method because the pressure of the auction environment better allows them to “condition” their owners into accepting a lower price (and thereby a quick sale), or because it removes the need to be honest about the likely value of the property. Good agents, however, will take into account the type of property, price range, owner’s motivation to sell and time restrictions or deadlines which may be impending and diagnose a strategy that best serves those circumstances.

It’s essential to take into consideration a number of things when deciding on auction or private treaty. First of all, which method is the most widely used and accepted method in your area? Are the majority of buyers looking in your area in a position to bid at auction? It’s important to take this into account as the auction terms of sale exclude the benefit of finance and building inspection clauses for the buyers. There is no cooling off period and normally 10% deposit is payable under the fall of the hammer. This might sound great to you as the seller but are your buyers realistically even able to make an offer under these terms? If not, by taking your property to auction you might be missing out on prospective purchasers who would otherwise have been interested.

The following is a list of circumstances where the auction method of sale might prove an effective sales strategy:

  • The property is unique and might be difficult to price
  • The property is of a type that is in particularly high demand
  • The seller is in dire financial circumstances and needs to sell quickly
  • The property has been repossessed by the financier
  • The property is being sold as part of a divorce settlement or deceased estate
  • Any situation where time is important or there are deadlines involved and a sale inside 30 days is needed

“It’s essential to take into consideration a number of things when deciding on auction or private treaty. First of all, which method is the most widely used and accepted method in your area? Are the majority of buyers looking in your area in a position to bid at auction?”

PRIVATE TREATY

The private treaty method is based purely on the price of the property and offers the opportunity to buy with the benefit of a cooling off period, as well as finance and building inspection clauses. This gives the buyer additional means of getting out of the contract but it also opens the property up to a potentially larger pool of prospective purchasers, many of whom might be unable or unwilling to buy at auction due to their inability to meet the auction terms of sale. This method is often viewed by home sellers as being a less risky and less stressful way to sell the property, but its success generally depends on the property being priced correctly in the first instance. If it is not, the absence of an impending sale date (one of the features of the auction process) can backfire and the property can go “stale”, which can be a real problem if the owner is under pressure to sell in a certain time frame. The marketing investment required from the seller is usually lower in a private treaty sale, as the cost of the auctioneer is not required, so once again it is perceived as having less risk attached to it from the owner’s perspective. If time is of the essence though, an auction campaign may be better suited.

In summary, it is important to ensure that your agent is recommending the most suitable method of sale for you property, not just the preferred method for them.

Til next time, ciao ☺

Lee Knutsen

Article by Lee Knutsen

Co-founder & Managing Director of House, Lee Knutsen first entered the real estate industry in 2006 as a residential sales specialist. After more than a decade as a sales agent…

Call 0412 757 981 Email Lee