If you’re buying, or selling, understanding the difference between an auction and a private sale is important. By understanding the differences and the potential benefits and pitfalls of each sale method, you’ll be able to make a clearer decision about how to approach your next house sale or purchase.

 

Auction vs Private Sale

Such a hotly debated topic in real estate circles – and even in your friendship group, probably.

Many argue that auctions are the only way to get the highest possible sale price for your property – the competitive spirit of buyers caught up in the emotions of the day can add thousands of dollars. But then there are others who swear by private sales.

So what’s best for you?  Check this list of pros and cons to see what makes the right sense for your individual circumstances.

 

Auction

Potential benefits

1. Urgency:

Auctions are great at creating a real sense of urgency with buyers.

There is a clear end date the sale must happen by and so they feel that if they don’t jump in with the best offer, they might miss out. This can lead to would-be buyers stretching themselves on the day – and going to heights they had not planned. (If you’re a buyer, be careful. By talking to an experienced mortgage broker, you’ll have a clear understanding of what finance you can access and you need to stick to your limit. There will always be another property…)

 

2. Increased competition

Those competitive bidding wars means that the asking price is often exceeded – not because the agent underquoted, but just because people are competitive and may be strongly connected to wanting that specific property at any cost.

This can be a benefit to the vendor.

 

3. Reserve pricing protection

At an auction, sellers are protected by the reserve price being set. If       you’re the vendor – this means that your property will not be sold unless the bidding reaches the pre-determined level.

 

4. Clear terms

Auctions provide vendors with the opportunity to enjoy an unconditional sale – and settlement terms can be implemented to suit the vendor.

 

Potential limitations

1. Costs

As a vendor, selling at auction can attract additional costs to cover specialist auctioneers. Make sure you discuss this with your agent so you understand all the fees.

 

2. Evidence of sales

If you’re selling an apartment in a larger complex of almost identical apartments, auction may not be the best way, as, with sales prices of other units easily available, the competition on the auction day may not be as fierce. In this case, private sale may actually help you score a better result.

 

3. Special sales conditions

Auctions are not the best place for buyers who need to purchase property subject to finance as bids are typically unconditional. If you’re a buyer, make sure you talk to an experienced mortgage broker to have your finance arrangements in place so you do have confidence to bid and secure the property you want.

 

Successful auction tips

1. Choose a great auctioneer

This person plays a key role in successful auction sales – especially if you end up with low attendance and only a small number of bidders battling it out. Interview a few to ensure you are choosing the one who can do the best for your property, based on their proven experience.

 

2. Set your reserve

In the days leading up to your auction, it’s important to set a reserve price you are happy with. Do not negotiate this on the day – when emotions are running high and the pressure is on. Know your reserve and stick to it. It’s information you should keep strictly between you and your agent – not something to share on social media!

 

3. Official contracts in place

Your contract and vendor statement should be available long before your auction date. You’ll be prepared and this will minimise the stress that can lead to poor decision-making.

 

4. Understanding market value

You should be prepared to accept market value on the day of your auction – hopefully after there has been some competitive bidding between multiple bidders.

Your auction may achieve less than you had hoped for as a vendor – another reason you need to be clear about your reserve price.

 

Private Sale / Treaty

Benefits

1. Less intimidating to potential buyers

Auctions can seem intimidating to many potential buyers. With private sales, people feel less pressured and more comfortable.

 

2. Urgency to sell

Private sales are best suited to sellers who don’t feel an urgency to sell.

If you’re a vendor who is open to the possibility of an extended settlement period, or a sale that is subject to finance, or even one that is subject to the successful sale of the potential buyer’s home, this can be a good option.

 

3. Costs

Selling privately usually costs less than selling at auction – mainly because there is no auctioneer, and also because marketing campaigns are less intense too. Talk to your agent to make sure you understand all the associated fees and charges.

 

4. Privacy

Private sales happen through private negotiation processes; – a format that means you can be more discreet about the specific details of your sale.

 

Potential limitations

1. Cooling off period

Private sales do have a cooling off period and this can prove stressful for vendors. The duration of the period varies from state to state but it means buyers can change their minds and back out – even after a contract has been signed.

 

2. Time-frames

Private sales don’t usually happen as quickly as auction – and can linger for a while. But…sometimes potential buyers can jump in quickly too. It’s important for vendors to realise the different scenarios. If you’re in a hurry to sell – this might not be best method for you

 

3. Boosting the sales price

One important limitation about private sales is that prices are usually negotiated down – whereas in auctions, the price is usually pushed up above the reserve. Be prepared that your private sale might mean you don’t make your original asking expectation.

 

Whether you are selling via auction or private sale, choosing an agent who does the best for your property is critical – it’s all about creating interest in your property. And if you’re buying? Be aware of the strategies agents and vendors utilise to push buyers like you beyond your limits and have your finance all organised. Good luck!

For more information on Auction vs Private Sale or any financial questions (for eg. personal home loans or business loans) you have, please contact Lending Specialists on (03) 8805-1800 or email barry@lendingspecialists.com.au.