How do they work?
With a private sale, you set the price you wish to sell for, and use a real estate agent to sell your property on your behalf. The process involves viewings and/or open houses with potential buyers, and does not usually have a set date by which the property will be sold.
An auction involves a campaign process that culminates in a bidding war on your property. You set your price and your settlement date, then the property goes to the highest bidder at the auction, provided the bid matches or is higher than the reserve price set by the seller.
Both methods have their pros and cons, and these could help you get a feel for which option might be best for you:
Pros and cons of an auction
In an auction situation, it can hasten the selling process, as you set a date for the auction and the agent has the opportunity to sell the property before the auction, on the day or directly after the auction.
Another advantage an auction can offer you over a private sale is the sense of urgency on the day can push price up past your reserve price, as can the competition between buyers. You can also set specific terms for the sale.
On the other hand, your agent may pressure you to push down your reserve price to make the sale.
There may also be costs associated with promoting and running an auction; this could be anywhere between $5000 and 10,000. This cost applies even if the property does not sell.
You may want to note that selling your property can be stressful, and opting to sell via auction can put further strain on you; you may feel pressured to sell your property as quickly as possible, lest you spend a great deal of money on the auction process.
Pros and cons of a private sale
Conversely, a private sale / treaty can give you greater flexibility for negotiating price and conditions, without needing to spend money on an auction campaign. It can be a slower process, however this may make it easier for you as the seller to deal with the stress that can come with selling a property. Private sale is generally less intimidating.
You aren’t working towards one specific date when your property should be sold by, so there is less pressure to make the sale fast; however this does mean that you could potentially spend a great deal of time preparing for home inspections and viewings. As a private sale occurs through a negotiation process, it provides greater privacy and enables you to keep the specific details of the sale out of the public eye.
A private sale does come with some disadvantages; firstly, buyers will often try to negotiate below your asking price, which can be frustrating when you need to secure your price to be able to buy another property.
There is also the risk of setting the wrong price; you could misjudge the market and set the price too low, meaning you miss out on money, or you may set the price too high, which will leave the property sitting on the market for a long period of time.
In addition, private sales are usually subject to a cooling off period (this differs by state), and as a result the buyer could change their mind after contracts have been signed.
Which one suits me?
This depends on the sort of property you own, the market you are selling in, what sort of budget you have and how quickly you would like to sell your home. An auction is typically seen as the faster way to sell, but may not be an option for those who cannot or will not spend the few thousand needed to run an auction campaign.
It is best to speak to your real estate agent about which selling method would suit you, your property and the current property market.
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Collections: Property Investment