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Auction or private treaty

Auction or private treaty

31 July 2015

Vendors new to the selling game can feel a little confused as they try to decide what selling method is best for their home or property.

 

Those who advocate sale by public auction claim that auction is faster and more reliable as the time frame is defined up front, giving the vendors the best chance to plan and coordinate any subsequent home purchase. They also say that the highest price is reached when buyers are forced to compete against each other on the day. They believe that a sale by private treaty can drag out for weeks and months if the right decisions are not made. It is undeniably true that once a property has been sold ‘under the hammer’, the sale is certain and irrevocable, whereas in private treaty sales there can be delays in exchange of contract. There is also the potential for a sale to fall through even after exchange of contract (though this rarely happens in practice) if a cooling off period for buyers is activated.

 

While auction advocates push the level of uncertainty existing at all levels of a private treaty sale, there are also those who argue the opposite: that auction is only faster and likely to get the highest price in a market that favours sellers – that only if there are enough buyers on the scene is sufficient competition generated to create the right climate for bidding to climb and the highest price to be reached. They also claim that when there are few buyers on the scene, the very potential of private treaty to extend the time frame can work in the vendor’s favour, allowing more time for the ‘right’ buyer to be found. After all, there are times when auction properties are passed in for lack of interest and go back on the market for sale by private treaty, which can be an expensive and stressful exercise for the vendor. In other words, in a slow market, auction makes it very visible to buyers that there is little interest, and that there won’t be much competition for any offers they decide to make later. In a slow market, the ‘private’ part of a private treaty sale becomes important as buyers can’t see all the other interested parties and often never realise how little interest there is in a given property.

 

So with all the differing viewpoints expressed above, how does a vendor know which way to go?

 

One of the main factors to consider is the selling culture of your local area. When you drive around, are there lots of ‘For Sale’ signs or are there more ‘Auction’ signs? What do other people who have sold in the area say?

 

In general if you have a unique property, or one in a highly sought after area, auction is likely to be successful no matter what the state of the market or the prevailing culture of your suburb or town. If a property is unique, it is much harder to decide on an asking price and sometimes the best price is achieved by forcing keen buyers to compete in public – or miss out on the one special property that suits them.

 

If your home is similar to others in the area, private treaty might be a better choice, especially as buyers who have been looking for a while and seen several similar properties sell will accurately pinpoint the market value and know exactly how much they will be prepared to pay - it doesn’t take an auction to flush out the ‘right’ price. Also, if buyers know there are other similar properties on the market, missing out at auction is not such a big deal as they know they will find something else fairly easily.

 

Interestingly, the negatives of both sale methods can be minimised if the state of the market is taken into account in the decision process. In both cases, one of the most important decisions affecting the speed and success of a sale is the setting of the asking price (private treaty) or reserve price (auction). Whether you sell by private treaty or public auction, maximise the success rate by expecting and setting a realistic asking price or reserve.