Whether you are buying or selling in the ACT and/or NSW, it is essential that you understand the different methods of sale.
An auction is a public sale that is usually conducted by an auctioneer or a qualified real estate agent, whereby the property is sold to the highest bidder.
A private treaty sale is where the seller sets the price for the sale, and negotiates accordingly with prospective buyers.
Why should I consider selling my home through an auction?
- Unconditional contract
If you are looking to sell your home quickly and you are confident that your home is in high demand, then selling your home through an auction may be the most effective method of sale. At the fall of the hammer, the property is sold and the contract becomes unconditional. This means that the highest bidder is legally obliged to buy your home, as there is no cooling-off period for an auction sale.
- Quicker and competitive sale
Due to the competitive nature of an auction, this can cause potential buyers to bid higher than the reserve price, leading to a higher sale price than you expected. An auction sale can also create a sense of urgency for the prospective buyers to put in a pre-auction offer at a higher price even before going to auction.
- High impact marketing campaign
An auction campaign is intense, usually runs for a shorter period of time and aims to attract as many interested buyers as possible. This creates a competitive environment for bidders, ultimately reducing the number of days that the home will remain on the market.
Do I need to be physically present at auction?
You don’t need to be physically present at auction but it may be worthwhile to ensure your home is well-presented as prospective buyers will inspect the property one last time before they bid.
If you are unavailable on the auction day, the auctioneer or real estate agent can also sign the contract on your behalf if you provide clear written authority and instructions for them to do so.
What happens if the last bid is below the reserve price?
The agent will ask you for a reserve price prior to auction. The reserve price is the lowest price that you are willing to sell your home for. If the last bid does not meet your reserve price, the auctioneer may ‘pass-in’ the property or withdraw it from auction. The highest bidder will then have the opportunity to negotiate the price with you to see if a sale can still be made.
If a negotiation cannot be reached, you may choose to hold another auction or list the property for sale through a private treaty.
Is it better to buy a home through private treaty?
- Opportunity for inspections and negotiations
For private treaty sales, the seller sets the price that they would like to get for their home then the agent will hold open homes and private inspections to welcome offers from potential buyers. The agent and seller can then negotiate with the buyers on an agreed price. Once the price is agreed, negotiations on certain terms of the contract through the respective conveyancing solicitors will likely occur at this stage. Accordingly, further changes will be made to the contract.
- Less intense and slower process
A private treaty sale can take several weeks or months to get to the exchange stage, allowing you more time to negotiate terms of the contract and organise your finances. Although more time can be beneficial, you are at risk of being ‘gazumped’ – that is when the seller accepts a better offer and sells the property to another buyer. The seller won’t be locked in to sell you the property until you pay the deposit, sign the contract and exchange.
- Obtain finance approval ahead of exchange
Unlike buying a home through an auction, where you can only get finance pre-approval before the auction day/exchange date, a private treaty allows you more time to arrange for an unconditional loan approval prior to exchanging contracts. This provides greater assurances that you will have the finances to purchase the property.
How should I prepare for the auction?
- Check your finance
You should conduct research into the property market within the area you are looking to buy. You should also speak with the agent to get an idea of whether the price range is within your budget. Speak to your mortgage broker or lending manager to confirm your bidding limit prior to the auction. Pre-approval of finances should be in place prior to your registering your attendance at the auction.
- Organise your deposit
If you are successful at auction, you will need to pay the deposit at the auction. Speak to the agent to determine what method of payments will be acceptable. In some instances, part payments are available where the remaining balance of the agreed deposit is due within a certain number of days after auction.
- Have the contract reviewed
We strongly advise that you have the contract reviewed by an experienced solicitor before committing to buying a property at auction. Our experienced property team can assist with auction contract reviews and we can resolve any issues on your behalf before you buy the property including:
- a 5% deposit arrangement
- a longer/shorter settlement period
- add certain goods or inclusions to the contract
- the seller to attend to certain repairs at the property
Can someone else bid on my behalf?
If you cannot be physically present on the auction day or if you do not feel confident bidding, you can appoint someone else to bid on your behalf such as your friend/family or a professional buyer’s agent. You will need to provide a letter of authority to the auctioneer before the auction starts.