If you are looking for your dream home or investment property you may come across properties that are in auction or private sale, there are times when some properties have price guide or some asks for expression of interest.
It can be confusing at times, so we put together the process, pros and cons for each type of tying process.
PRIVATE TREATY
Buying a property through private treaty means engaging in a direct negotiation with the seller or their agent to agree on a purchase price and terms. Unlike auctions, there’s no public bidding, and you have more flexibility and control over the process.
Process
Listing: The property is advertised with an asking price or expression of interest (a guide, not fixed), usually by a real estate agent.
Offer: You submit a written offer to the seller, often through the agent, stating your proposed price and any conditions (e.g., finance approval, building inspection).
Negotiation: Both parties can negotiate the price and terms. This can involve counter-offers and revisions until an agreement is reached.
Cooling-off period: Most states in Australia offer a cooling-off period after signing the contract, allowing you to back out (with potential penalties, normally this is an upfront deposit).
Settlement: Once terms are finalized and conditions met, the sale settles, and you officially own the property.
Pros:
Negotiation: You can negotiate the price with the seller, potentially paying less than the asking price.
Conditional offers: You can make offers subject to conditions like finance approval or building inspections, mitigating risk.
Cooling-off period: Most states offer a cooling-off period after signing the contract, allowing you to back out (with potential penalties).
Less stressful: The process is more flexible and less pressured than auctions.
More time for due diligence: You have more time to research the property, get inspections, and make informed decisions.
Potentially avoid competition: No bidding wars, so you might secure the property without overpaying.
Cons:
Uncertainty: The final price isn’t set, and negotiations can be time-consuming.
Slower process: Finding a suitable property and agreeing on terms might take longer than auctions.
Seller sets the asking price: You might negotiate down, but it’s unlikely to go significantly below the initial price.
Competition isn’t guaranteed: You might face other interested buyers, leading to multiple offers.
Requires research and negotiation skills: Successfully navigating the process requires good research and understanding of negotiation tactics.
Additional factors to consider:
Pre-approval: Get your pre-approval sorted so you know your budget. Speak to us to organise one before you make an offer.
Market conditions: In a buyer’s market, you might have more leverage for negotiation.
Your personality: Are you comfortable negotiating and dealing with uncertainty?
Support: Consider seeking assistance from professionals to guide you through the process.
AUCTION
Buying a property at an auction means participating in a public event where you and other interested buyers compete to purchase the property by bidding against each other. The highest bidder, if their offer meets the seller’s reserve price (minimum acceptable price), wins the property and is legally bound to purchase it.
Process:
Open for inspections: The property is typically open for inspection before the auction, allowing potential buyers to assess its condition and value.
Registration: You need to register your interest with the agent beforehand and provide identification and financial information.
Bidding: The auctioneer starts the bidding at a specific amount and calls for increments. You raise your paddle or verbally announce your bid to indicate your interest.
Reserve price: This is the seller’s minimum acceptable price, which is not typically disclosed publicly. If the bidding doesn’t reach the reserve price, the property won’t sell.
Conditional bids: Not allowed in most Australian auctions. Your bid is unconditional, meaning you are legally bound to purchase the property if you win.
Cooling-off period: Not available after winning an auction. Once the hammer falls and you are the declared winner, the sale is final.
Pros:
Transparency: The bidding process is public, so you can see how much everyone else is willing to pay. This can help you avoid overpaying for a property.
Faster process: Auctions can be a quicker way to buy a property than private treaties, which can involve drawn-out negotiations.
Market-driven price: The final sale price is determined by the market, rather than an arbitrary asking price. This can give you peace of mind knowing you’re paying fair market value.
Less negotiation: There’s no need to haggle, as the highest bidder wins.
No cooling-off period: Once you win the auction, the sale is final.
Cons:
Unconditional contracts: You are legally bound to purchase the property if you win the auction, regardless of any conditions (e.g., finance approval, building inspections). This can be risky if you’re unsure about your finances or the property’s condition.
Stressful environment: Auctions can be fast-paced and competitive, which can be stressful for some buyers.
No guarantee of success: The property may not sell at auction, and you could walk away empty-handed.
Competition can push the price up: If there are multiple interested buyers, it can drive the price up, which can be beneficial for the seller.
Reserve price unknown: You don’t know the seller’s minimum acceptable price (reserve price) beforehand, so it’s difficult to know how much to bid.
May pay more than market value: In a competitive auction, you could end up paying more than the property is worth.
Limited time for due diligence: You need to be prepared to bid without any cooling-off period or the ability to make your offer subject to conditions.
Additional factors to consider:
Pre-approval: Get your pre-approval sorted so you know your budget. Although the final approval requires valuation of the property, knowing how much lenders are willing to lend will give you and idea of how much you can bid to. Speak to us to organise one before you make an offer.
Your risk tolerance: Are you comfortable with the potential for things to go wrong (e.g., not getting finance approval after winning the auction, valuation coming lower, you need to come up with more deposit etc.)?
Your experience level: If you’re a first-time buyer, auctions can be more complex and risky.
The current market: In a hot market, you’re more likely to face stiff competition and pay a premium at auction.
The specific property: Do your research and get professional advice to ensure you understand the property’s condition and value.
Ultimately, the choice between private treaty and auction depends on your individual needs and preferences.
Remember, research is crucial! Compare properties, understand market trends, and seek professional advice before making any significant decisions.
Speak to us
If you would like to discuss further regarding the process of buying and the pre-approval process, please contact me directly and we can arrange a time to understand key factors.
