In real estate many things are uncertain; markets fluctuate, buying patterns change and suburb hot spots vary.

One question is common however, every seller goes through the same thought process and considers whether they should sell their property via auction or private treaty.

While 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 treaty is the way to go, as you are not excluding any possible buyer from the buying process. However this commonly held belief may not necessarily ring true in terms of the most amount of money netted by the vendor in a real estate transaction.

To help make a more informed decision, we have compiled a list of pros and cons for you to weigh up when deciding which sales method to use.

Selling at Auction

Pros

1)      Sense of Urgency; Auctions can generate a sense of urgency. Expensive marketing campaigns create an even greater sense of urgency, highlighting that a property will be sold on a set date.

2)      Competition Amongst Buyers; At an auction, some vendors believe that 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; this however is not always the case.

Let us explain. Paula placed a pre-auction offer for $700,000 on a property. The agent told Paula that the seller wanted to take the property to auction to really see what it was worth. Paula attended the auction and on the day was blown away to see that there were only 2 other bidders in the room. With an opening bid of $600,000 things were off to a flying start in $10,000 increments until suddenly bidder 3 was out at $650,000. Bidder 2 slowed to $5,000 increments and in a matter of minutes, Paula was the highest bidder at $670,000, $30,000 below what she had previously offered. With no other bidders, Paula was looking likely to secure the property at $30,000 less than she was willing to pay just 10 days prior. With the property passed in and post-auction negotiations in play, Paula secured the property for $680,000.

In this example, which is not unique, it happens quite often, the seller effectively missed out on $20,000. This is an example to keep in mind when considering to sell your home via auction or private treaty.

3)      Set Terms; Auctions are suited to situations where the owner wants an unconditional sale or wishes to set specific terms, this can including setting a settlement period which suits the seller’s situation.

 

Cons

1)       Cost; There may be additional costs involved to sell a property via an auction when compared to private treaty. To cover the cost of hiring an auctioneer or specific marketing campaigns, many agencies charge up-front marketing costs which are accrued by the vendor whether the property sells or not. Often real estates agents need to create multi-faceted marketing campaigns given the short campaign window. This is something to consider when choosing between auction or private treaty.

2)      Sales Evidence; For properties where there is ample sales evidence, an auction may not be the best way of selling.  A prime example of this is in unit blocks where buyers have the ability to access sales data with ease on a like-for-like property.

3)      Not the best method for obtaining the most money in the bank account of the owner; Generally, auctions are not always the most effective way to get the most amount of money in your bank account as an owner of a property.

Let us explain. Have you ever fallen in love with a home? Maybe it suited your family to a tee? Maybe you had a family connection to the property? There are many reasons why buyers feel that a home is RIGHT for them.

Now consider, if you were asked to pay $20k less for the property (as in the example above) would you insist on paying more?Would you say “This is the perfect home for us, so I would like to give the vendor an extra $20,000?” Probably not. In the auction system, you are asked to pay only slightly more than the underbidder. In the private treaty system, you are not aware of the other proposals on the property, and you are likely to submit your strongest offer (because you love the house).

If you would like more information regarding selling your home via auction or private treaty and which is the right method of sale for you, feel free to contact one of our expert negotiators, who can help you make the right choice.