Auction vs Private Treaty

October 26th, 2018 - by Brad Gillespie

When selling or buying a property – be it your dream home or an investment unit – you’ll be weighing up whether you should do it via an auction or private treaty.

We look at the pros and cons.

It may surprise you to learn that the majority of Sydney homes sell by private treaty, rather than at auction, regardless of market conditions, with more houses sold via auction than units. Sales of units at auction rose to around 20 per cent of units sold during the height of the property boom but have since been declining.

CoreLogic data shows that there was a 20 per cent nationwide reduction in the number of homes taken to auction during this year’s winter period compared to 2017 – with Sydney and Melbourne the most affected. However, even in this cooling market, in areas where properties are tightly held, with little stock and lots of competition, auctions remain the preferred method of sale. Suburbs in the inner-city and east lead the way when it comes to auction rates, with at least half of all houses and units selling at auction.

Whether you choose to buy or sell at auction or by private treaty sale depends on where and what you are looking for, as well as your personal temperament. Understanding the process involved in each will increase your odds of success.

Buying at auction

When you buy at auction you register on the day of the auction to compete against other bidders. One key difference to keep in mind between this process and buying through private treaty is that if you are the successful high bidder there is no ‘cooling off’ period in which you can change your mind. This applies even if the property is ‘passed in’ (not sold by the end of the auction) but you exchange contracts on the same day as the auction.

This means it’s extremely important to be prepared. You’ll need to have done all your due diligence on both the market and the property, including completing all pest and building inspections. You’ll also need to have your finances in order and come prepared with your 10 per cent deposit.

The good news for sellers is that when emotions and competition run high at auction, a bidding war can ensue, driving up the price. But if a vendor’s expectations are unrealistic they may get a reality check.

Even if it’s listed for auction, a property can also be purchased pre-auction. To do this, a buyer needs to negotiate with the agent and make a pre-auction offer, which the vendor may decide to accept. This becomes a similar process to Private Treaty but there is no cooling off period.

Buying via private treaty

Private Treaty sales are standard residential property transactions, where the owner sets the price they’d like to sell for and their real estate agent negotiates individually with prospective buyers to reach a sale as close to this price as possible.

Buying and selling through private sale can be a lot less stressful than going to auction, particularly if you are a first-time buyer. You’ll have more time to speak with the vendor’s agent. You can also negotiate the price you’re willing to offer with a cool head, away from what can feel like the high-stakes pressure of an auction. Before you make an offer, you ask for the contract of sale and have your solicitor or conveyancer review it. Once you and the vendor have agreed on a price, you’ll exchange contracts. At this point, you pay a deposit, typically ten per cent.

Vendors should bear in mind that in areas with high auction rates buyers can be skeptical of a private treaty sale, and without the set time frame of a four-week auction properties can linger longer on the market.

When you buy a residential property in NSW through private treaty, you have a five business-day cooling-off period after you exchange contracts. During this period, you can get out of the contract as long as you give written notice. If you withdraw from the contract during this period, you’ll have to pay the vendor 0.25 per cent of the purchase price.

Contact me today if you’d like more advice on buying through auction or private treaty.