Should you go to auction or sell privately?
When you’re busy preparing to sell your home, understanding the difference between selling via auction or by private sale is an important part of the selling process. There are pros and cons to each method, but the most important thing is to be comfortable with your decision.
In the auction process, potential purchasers bid on your property. The highest bidder at the end of the auction is the successful buyer. Of course, this is all dependent on whether the bid matches or exceeds your reserve price.
Prior to the auction, the vendor (you) sets the reserve price with guidance from your real estate agent. When a bid reaches this reserve price, the property is officially on the market. Even if a bid is $1 more than the reserve, the vendor must accept it.
Importantly, the reserve price may be adjusted on the day.
In an auction, the sale is dictated by the people in the room. This can be a positive or a negative thing. Two or more interested parties could create a bidding war, pushing your sale price up. But with only one interested party, it’s possible your property could be passed in, meaning that the reserve price wasn’t met and so the property was not sold.
Pros of selling at auction:
These are the advantages of choosing to sell your property at auction:
- Three opportunities to actually sell your property – prior to auction, auction day or, if the property is passed in, through negotiation.
- You choose the reserve price, so the property cannot be sold unless bidding reaches that magic number.
- You choose the settlement date that suits you.
- Pre-arranged open inspections mean you can schedule your activities around ensuring the property is in perfect condition for buyers to come through, and that you’re out of the house when it happens.
- The auction process creates a scene of urgency, so potential buyers have a timeframe in which they need to act.
- As soon as the hammer goes down on the final bid, contracts are exchanged. There is no cooling off period so the bidder is completely committed to buying your property.
Cons of selling at auction:
These are the disadvantages of choosing to sell your property at auction:
- Usually, auction campaigns come with a more expensive advertising campaign and even if the property does not sell, you are still responsible for paying these costs.
- If your property is passed in, you may lose some prospective buyers as it can indicate that your expectations are too high for the market.
- Some people don’t like the public nature of an auction, and despite really liking your property, it may put them off attending.
- If, for whatever reason, bidding is slow, it can send the wrong message that no one is interested in the property.
A private treaty sale occurs when you set the price you are prepared to sell your property for, and your real estate agent negotiates on your behalf to achieve this figure, or as close to it as possible.
Negotiation happens throughout the selling process and can be with a number of prospective buyers at any given time. While not public, this still creates competition, especially if there are multiple parties interested in the property, as all negotiation goes through the real estate agent.
As soon as the property is on the market, potential purchasers can express interest and begin negotiations.
Importantly, you are not locked into the price you set at the beginning. Throughout the process, if you wish to adjust your asking price, you are free to.
Pros of selling via private sale:
These are the advantages of selling your property via private treaty:
- The cost of the marketing campaign is generally lower than that of an auction campaign. You also save the cost of an auctioneer to call the auction.
- As there is no deadline, you have the freedom to take your time thinking about offers that come in. There is less pressure to accept low offers.
- The result can be much quicker, as interested parties can act as soon as the property hits the market.
- People who express interest are generally genuine buyers. They know their financial limit and can commit to the offer they put forward. You will rarely get parties wasting your time.
- Greater flexibility with clauses in the contract. Contracts can be signed ‘subject to’.
Cons of selling via private sale:
These are the disadvantages of selling your property via private treaty:
- With no deadline looming, it can take longer to sell your property.
- Sometimes, private treaty sales do not have set times to inspect the property. This means you may need to make your home available at inconvenient times to potential buyers.
- If you choose a price that is too low, you run the risk of selling your property for lower than market value. If you choose a price that is too high, you run the risk of your property not selling for weeks or even months.
- There is a ‘cooling off’ period that must be included in the contract. This gives parties the option to change their mind.
- Potential buyers will often try to negotiate you down on your asking price. If you’re in a hurry to use that money to purchase a new property, this can get frustrating.
Of course, the decision to sell by auction or private treaty is largely governed by the property market at any given time and the state you live in. If there are a lot of buyers, competition will be high and perhaps an auction is better suited. Alternatively, if you are in a prestige area, it’s possible that private sale may be better as your agent will likely already have potential buyers for you in that price bracket.
If you are looking at selling your property and aren't sure which sales method would best suit your interests, please contact us at OpenAgent and see how we can help you.