To Sell at Auction or Private Sale?

   submit to reddit

Selling by private sale or auction is a highly debated topic in the real estate industry.  Whilst many would argue that auctions are the best way to secure the highest sale price for your property given the competitive nature of buyers on the day, others believe private sale is the way to go.

So which method of sale should you choose?  To help make a more informed decision, realestateVIEW.com.au has compiled a list of pros and cons to weigh up when selling your home.

 

Selling at Auction

Benefits

1)      Sense of Urgency; Auctions generate a sense of urgency amongst buyers.  This sense of urgency is due to there being a set ‘end date’ for the sale of the property and this compels potential buyers to make a decision on the day.

2)      Competition Amongst Buyers; At an auction, competitive bidding amongst potential buyers means that the selling price often exceeds the expected value of the property, maximising the sale price for the seller.

3)      Reserve Price Protection; An auction provides sellers with protection in the form of a reserve price.  This means that your property will not sell unless bidding reaches a pre-agreed level.  Further, there is no ceiling price, so you have the opportunity to achieve a price well above your expectations especially if there is a competitive crowd.

4)      Set Terms; Auctions are suited to situations where the owner wants an unconditional sale (no cooling off at auction) or wishes to set specific terms of sale, such as settlement terms to suit the vendor.

 

Limitations

1)       Cost; There may be additional costs involved to sell a property via auction to cover the cost of hiring a specialist auctioneer.  It is important to discuss and compare the costs to sell via auction or private sale with your agent.

2)      Sales Evidence; For properties where there is ample accurate sales evidence, an auction may not be the best way of selling.  For example, for a large block of identical units which are all of a similar specification, everyone would be aware of the sale price of other units, thus private sale could result in a higher sale price per property.

3)      Special Conditions of Sale; Generally, auctions are not suited to buyers who wish to purchase subject to finance as often bids are unconditional.  This limits the potential number of buyers that your property could appeal to.

 

Tips for a successful auction

  • Selecting an auctioneer; The auctioneer will play a key role in the success of your sale, particularly in a scenario where only one or two bidders turn up on the day.  Ensure you see several auctioneers in action before deciding on whom to go with.  Ask them about their agency’s strategies to maximise the best price for your property, and choose an auctioneer with a proven track record in auctions and an excellent knowledge of the local area.
  • Setting a reserve price; Settle on a final reserve (i.e. the lowest price you are willing to accept) in the days leading up to the auction.  It is important that the reserve is well planned, so that you don’t end up negotiating this half-way through the auction when time, pressure and emotions are high.  It is also important that you do not disclose or discuss your reserve price with anyone except your agent/auctioneer.
  • Contracts; It is important to make sure you have the contract and vendor statement available well before the auction date.  This way you will have everything prepared in advance, and not have to stress over these details in the days leading up to the auction.
  • Accepting market value; Be prepared to accept the market value on auction day, provided there has been competitive bidding between multiple bidders.   Sometimes auctions achieve results lower than your expectations as a result of market conditions, and this is why you need to properly plan your reserve price.

 

Private Sale / Treaty

Benefits

1)      Less intimidating for buyers; For many potential sellers and buyers, the thought of an auction can be quite overwhelming and intimidating.  For this reason, private sales / treaties can be beneficial in that sellers have more time to consider offers made by potential buyers and vice versa.

2)      Urgency to sell;  Private sales / treaties are suited to sellers that do not have an urgency to sell, and where they may be open to accepting different sale terms, such as an extended settlement period, sale subject to finance or subject to the sale of the buyer’s home.

3)      Cost; Selling via private sale / treaty can often prove to be less expensive than an auction, as marketing campaigns for private sale properties are usually not as extensive.  It is important to discuss and compare the costs to sell via auction vs private sale with your agent.

4)      Privacy; As a private sale / treaty occurs through a negotiation process, it provides greater privacy and enables you to keep the specific details of the sale out of the public eye.

 

Limitations

1)      Cooling off period; Private sales / treaties are usually subject to a cooling off period (this period differs by state), as a result the buyer could change their mind after contracts have been signed.

2)      Sale length; Selling via a private sale / treaty method often can take more time than an auction.  This is because there is no specific end date to give prospective buyers a sense of urgency.  No deadline may also mean that potential purchasers may not be motivated to act as quickly.

3)      Maximising the sales price;  A key limitation of private sales / treaties is that the price is negotiated down compared with auctions where the bids increase.  This means that the property is less likely to sell for more than the asking price.

 

Tips for a successful private sale / treaty

  • Creating interest in the property; If timing of the sale is important to you, discuss your options with the agents you are considering engaging to sell the property.  Some options to speed up the sale may include: additional advertising; setting a lower asking price; being flexible about inspection times; or making some quick cosmetic changes to the property.  You may also consider selling via “expression of interest”, which calls for offers by a specific date.
  • Pricing your property;  As the price is often negotiated down in the private sale method, it is important that you price the property slightly above the price you would like to sell the property for.  By doing so you will increase your chances of reaching your asking price after the negotiation process takes place.