What is the Difference Between Auction and Private Treaty Sales?

There are many questions sellers need to ask themselves before they decide to sell their property. The answers are pertinent to the strategy of the sale, the end result and the influence the sale will have on the market place for properties in the surrounding area.

In Australia the method of sale by Auction is alive and well, with Melbourne and Sydney being amongst the biggest auction capitals in the world. Every Saturday of the year Melbourne sees more than 1000 properties go up for auction and Sydney has around 800 properties go under the hammer. The power of the auction system is that it forces buyers to compete for that property in an open market place often also known as 'street theatre'.

During the past five years we have seen strong market growth with property values growing by up to 50% across the Eastern seaboard. It has been a great time to auction property as the market has been working in an upward trend.

As auction clearance rates decline, confident dips and properties become harder to sell. This is a natural trend in any marketplace and gives buyers a chance to take advantage of opportunities that may come up with forced sellers.

What motivates a vendor to decide to go to auction rather than sell by private treaty? 

-          Supply and demand of that type of property in the suburb they are selling

-          State of the market trends in that suburb i.e average days on the market 

-          Motivation of the vendor, i.e. how quickly would they like a sale

-          How long the property has been in the same family

-          Lifestyle factors and extra features on the property that will attract buyers

-          Whether the property is located central to all amenities including, airports, shops, beaches, city district, parks, schools, transport links etc.

The vendor will then make a decision to go auction or to put their property on the market for sale, normally after some assistance from a real estate agent who has experience in that local area.

Auction

The agent will give buyers a guide price throughout the campaign and this guide price is legally required to be within 10% of the price of the property. However, in many instances in Sydney’s Eastern and South Eastern suburbs, we have witnessed properties selling for $1m over reserve at Auction. These sales do not just happen automatically, they are a combination of strategic planning, great communication with buyers and excellent market coverage. 

The auctioneer plays a critical role in bringing the whole process together and in some cases will influence buyers and push up the end price by tens of thousands of dollars.

The vendor is required to give the auctioneer a reserve price prior to the Auction, which he is authorised to sell the property at. The auctioneer does not have to disclose this  but every vendor is allowed to make one bid on their own property which the auctioneer must disclose.

Private Treaty

This is when the Vendor decides to put a fixed price on their property or a price range, for example $1m – $1.1m. When vendors decide to put their properties up for sale their motivation to sell is normally not as strong as perhaps someone who would be auctioning their property. Some clients have not found the right property to buy therefore until they have bought they put their property on the market for sale because there is not as much pressure to sell immediately.

In these instances there is less pressure on the buyer, though in saying that, buyers are attracted to this process as it gives them an opportunity to deal with the vendor rather than compete with other buyers in the market place. They also feel comfortable about the price being set rather than the threat of the property going to auction and the price range blowing out of hand. These sales are effective in the market place for many of our clients who don’t want the fun fair of an auction and the hundreds of people attending open homes. The process for private treaty is a more one on one which suits many of our home sellers.

In some instances we make what is known as off market sales, when a property is sold before even going to market. The agent may have it listed with no marketing and basically invites his database to inspect the property without the rest of the market knowing. Buyers and sellers are highly attracted to this process cause there is no cost for the seller and in most instances the agent only requires one or two inspections before they can close a sale by just relying on a strong database of active buyers and a healthy sales track record in the area.

Giving our clients the choice of auction, private treaty sale or even an off market sale is critical for our business to grow, to achieve record prices which effect market trends and provide a quality service.