Auction V’s Private Treaty

Date: 30 June 2021 Author: Chris McGregor

Chris McGregor – 30 June 2021

As a Real Estate Agent I love a good Auction, the crowd, anticipation, the excitement, then the the Auctioneer’s cry, SOLD, SOLD, SOLD! So when is an Auction the right selling method for a property? Many Agents have a different thought/belief when it comes to Auctioning property, below are my thoughts on the subject.

Auctions have two purposes, the first is to quickly educate the market about a property which “Must” be sold (urgency), the second is to secure an unconditional sale prior to or under the hammer. Whereas the Private Treaty method of listing a property for sale with a price can be a slower process in securing an unconditional sale.

The two methods are actually very similar, except for the price. I prefer to think about Private Treaty as the third stage in the Listing process, with the Auction day as stage two, and the pre action campaign period as stage 1, let me explain.

Stage 1 – Campaign Period. The property is listed for sale without an asking price, generally for 3 to 6 weeks. During this time there is a large marketing campaign promoting the property, with the specific purpose of generating urgency amongst the buyers in the market to act now and not miss out on the property. During this period buyer’s can be encourage to make an offer to purchase the property prior to the Auction, but their offer to purchase the property must be must be in the form of a signed unconditional purchase contract. Depending on buyer interest in the property during the campaign, the seller can if they want to, but they do not have to accept an offer prior to the Auction.

During the Auction campaign period, the Agent will be providing the Seller with regular buyer feedback, to assist the seller with setting the Reserve Price on the day prior to the Auction.

Stage 2 – Auction Day. This is simply the day the property sells, or doesn’t. The purpose of the Auction Day is to tell the buyers that this is the day that the seller wants the property sold, this is done to create urgency amongst the buyers. Auctions are all about urgency, the process works when there will be several buyers for the property. When a property sells under the hammer, it sells under auction conditions, which means that the property is sold unconditionally. Sold means SOLD!

Stage3 – Private Treaty. If a property does not sell during the Auction Campaign, or on the Day of the Auction, the property is now listed for sale at a specific price, generally for the reserve price or thereabouts.

Selecting a property for Auction is about knowing how much demand there will be for a particular property. Auctions work best when listings are low and buyer demand is high.

When listing a property for sale by Private Treaty and following the principals of the Four Best Selling Tips, the right buyer can be found quickly for a property, however the sale will not be unconditional. It could take one or even up to four weeks for the property to become unconditional. This could be weeks the property is “off the Market”, then if the buyer’s finance falls through and the property needs to be listed for sale again to find another buyer. So the advantage that an Auction has over Private Treaty in the first four to six weeks is that the property remains on the market until a buyer is ready to secure the property unconditionally.

Where sellers and Agents need to be cautious with the Auction process is with the costs upfront to seller. An Auction campaign on the islands would normally cost between $2000 and $5000 upfront. But the reality is that this is taken into when setting the Reserve Price, then every bid over the reserve price is 100% profit! In a Sellers Marker, an Auction is seriously worth considering.

As an experienced Auction Agent Chris McGregor will able to advise you if an Auction is suitable for you and your property.

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