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Private treaty or auction: Which is better?

The essence of a successful sale is getting the best price for a product, which is the primary goal of a vendor. The same is true in the real estate business.

In the real estate business, the prices of property are governed by a lot of variables that affect it- both controllable and uncontrollable. From interest rates, land valuation, foreign currency exchange, and zoning are just a few of the many variables that come into play and sadly, there’s nothing you can do to control or change it.

However, there are ways to dispose of your property by taking advantage of processes that could allow you to get a good price for it.

Private treaty or auction

These are two methods of selling your property that can help you get the most value out of your property by selling it through an auction or private treaty.

But while both methods are worth seriously considering, take note that each of these has their pros and cons which is why it is important to review the processes to determine which would benefit you the most.

Here is some basic information you need to know:

What is a Private Treaty?

It is an agreement for a set price that you hope to get after consulting with your agent or broker, based on market conditions, valuation, and other factors that could affect the price or value of your property for sale.

At the start of a Private Treaty discussion, the property owner initially sets a target price above prevailing market rates, to allow the vendor some flexibility when dealing with a potential client or buyer who would like to drive the price down.

It is then the responsibility of the real estate agent or broker to use the offered price to negotiate with individual buyers or parties, by sealing a deal on an amount offered by a buyer that is closest to the set price.

The benefits of such as process is that it could work for a vendor without the urgency to sell the property right away, especially sellers who are open to several sale options such as the buyer wishing to secure a loan to purchase the property, instalment terms, or those waiting to secure funding for the payment by also selling their property to pay for the purchase.

It is also less intimidating compared to an auction, which can be stressful for the vendor as agents or buyers often exert some pressure into making a decision to sell to the highest bidder right away. 

The buyer is also entitled to privacy since the sale price remains private and kept away from the prying eyes of the general public or other real estate agents and brokers.

However, there are a couple of downsides to the Private Treaty process, as it can take longer to sell the property and not until you find the right buyer who can match or come close to your asking price. There is also the risk of getting way fewer offers than you would expect since buyers will be negotiating for the lowest possible price that they can get out of the property sale.

What is an Auction?

This is the most common sale method in Australia and is becoming increasingly popular as it has been the subject of many reality shows and entertainment media concepts.

In an Auction, potential buyers register for it and gather in public to bid on the property listed for sale. A starting bid is set and bidders offer prices higher than the other participants. The ones with the highest bid get to be the winner of the auction process.

One can benefit from an Auction because it can sell your property in a flash. The urgency of the process makes potential buyers make a fast decision to bid with the highest possible price they can afford for the property.

Competition can be a bit high since bidders need to outbid one another, which helps drive the sale price up to and beyond what the vendor expects to get. Your property sale is also protected by a reserve price fallback which ensures the buyer of a pre-agreed price in there is no or not enough bidders turns up. If a property does not pass pre-qualification standards for a set price for the auction, the process is halted and the vendor can negotiate with the highest bidder.

An auction also allows the vendor to get an unconditional sale of the property. Once the highest bids are cast and the hammer falls, the highest bidder is obliged to sign a sale contract which may also include the terms of sale and payment arrangements, when necessary.

A couple of downsides to an Auction is that it can drive costs up in terms of marketing, advertising, and the services of auctioneers, as well as other incidental expenses. Another would be that potential bidders could exclude themselves from the auction if they are unable to secure finances before the actual bidding take place. This could reduce the number of bidding participants for the auction and limit the sale price.

So, before you make a decision to sell your house, make sure to weigh your options and check if your conditions warrant any of these two methods that would suit your conditions or needs to dispose of your property.