When selling your home, one of the first details to discuss with your real estate agent is whether to sell at auction or via private treaty. Both sales methods have their pro and cons and your agent will advise you on which is best for you in the current market.
Here are some details on how both sales methods work to help you make an informed decision.
Selling via private treaty
A sale by private treaty is a standard residential property transaction where you work with your agent to set an asking price for your home and your agent then negotiates with prospective buyers.
When a prospective buyer makes an offer, you can make a counter offer via your agent and negotiations continue until the prospective buyer drops out or you reach an agreed price.
Once an agreed price is reached, contracts are exchanged and a settlement date is set (usually eight weeks but this is negotiable). After contracts are exchanged, there is a cooling off period wherein the buyer can pull out. This period varies from state to state.
Pros
Selling by private treaty is generally less costly then selling at auction. It also allows for a larger pool of potential buyers as terms can be more negotiable such as length of settlement period and buyers can place offers subject to finance or subject to sale of their own home.
Selling by private treaty is also less stressful than an auction sale – for both you and your potential buyers.
This method of sale is best in a slow market, where an auction may not attract any bidders, and for those who do not have an urgent need to sell.
Cons
A private treaty sale may mean having your home on the market for a lengthy period – meaning a lot of work each week keeping your home picture perfect for open inspections each weekend and private inspections as requested during the week.
The cooling off period after contracts are exchanged could lead to a buyer changing their mind and dropping out just when you think the whole process is coming to a close.
You will also be starting at the asking price and negotiating down, as compared to an auction where the sale price is negotiated upwards. With an auction, there is far more possibility you could achieve or even exceed the asking price in a lively market.
Selling by auction
When selling by auction your agent will set a date for buyers to come together to bid for your property and will book an auctioneer for the day.
On the day, you and your agent will set a reserve price. When bids reach this amount, the property is said to be 'on the market'. The highest bidder over the reserve price becomes the successful buyer.
Pros
An auction campaign can be very quick and your property could be on the market for as little as five weeks. If your agent advertises that you are open to offers prior to the auction you could even sell beforehand. If the sale passes in on the day (i.e. bids do not reach your reserve price) then you can still negotiate with potential buyers, starting with the highest bidder.
An auction creates a sense of urgency and flushes out serious buyers who need to act quickly if they really want to secure your property. Contracts are exchanged on the day and there is no cooling off period.
Cons
An auction generally requires a more expensive marketing campaign than a private treaty sale, plus you have the additional cost of hiring an auctioneer.
In a slow market an auction campaign can fail to attract any serious bidders, meaning additional costs for a new marketing campaign for a private treaty sale.
Selling at auction is stressful as you will be in the background on the day and your agent will be in contact with you throughout the auction for you to make instant decisions. You need to keep a cool head and have complete faith in your agent and your auctioneer.
If you're thinking of selling in the near future, ask your local Century 21 agent for a free appraisal of your home and discuss what sales method would work best for you.