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[MoreMore Insights] Auction vs Private Sale

Whether you are buying or selling a property, it is important to understand the different real estate purchase processes. Auctions can be transparent but intense, and private sales can be discreet but slow.

What is the Auction?

An auction involves potential buyers bidding on your property. At the end of the auction, the highest bidder will be a successful buyer of your property. However, you can only continue to buy if the highest bid you give matches or exceeds your reserve price.

A reserve price, is the cost of the home, set by you. You can adjust your reserve on the day of the auction if need be. Once bidding reaches the reserve price, then your property is officially on the market.

However, if the bidding does not meet your reserve, the property is ‘passed in’ meaning it won’t sell at that auction. You may then choose to offer your property via private sale or sell at a later date.

How does the Auction Process Work for Buyers?

While bidding at auction may seem straightforward enough, there are actually a number of things to be aware of before the day.

Organizing inspections: it’s smart to get a building and pest inspection done before you bid if you’re serious about buying the property.

Review the contract of sale: Generally, buyers will be able to view the contract of sale before the auction. You might like to have a solicitor review this to ensure there are no problems.

Get pre-approved: home loan pre-approval can give you a better idea of your bidding limits to prevent you from bidding beyond your means.

No change of mind: there’s no cooling off period for property auctions. So, if you make the highest bid, it’s very difficult to get out of buying the property without legal or financial repercussions.

Benefits of an Auction for Seller

Buyers Compete for Your Property. If there’s strong competition, the purchase price can go above the reserve price;

An auction is an efficient method to sell your house in a selected period of time;

Your reserve price is protected;

Sellers can receive pre-auction offers, and auction buyers tend to be serious buyers.

What is a Private Sale?

Also known as Asking Price or Private Treaty. This is a less confrontational way to sell. The seller usually engages the services of a licensed real estate agent who markets the property and acts on behalf and in the best interests of the seller. The agent is contacted by potential buyers and negotiations and contracts are drawn up between the two, as long as the price offered is acceptable to the seller.

How does the Private Sale Work?

Organise inspections: Same as buying at auction, it’s smart to check that the property is in sound condition before you make a formal offer;

The offer: Offers can be made verbally, by filling out a form or by completing a contract of sale. If both parties agree to the offer and any sale conditions, contracts will be exchanged and the buyer will usually be required to pay the deposit at this point;

The cooling off period: Unlike bidding at auction, buyers who make a private offer can usually retract it. The timeframe in which this is permissible varies between states and territories but it’s generally between 2 and 5 business days.

Benefits of a Private Sale

Cooling off period;

Sellers have more control over the sale;

Sellers have time to consider all potential offers and can even extend this time;

Buyers can make a private offer without the pressure of others knowing;

Sellers will save expenses on advertising the property.

The Two-Thirds Rule for Real Estate Auctions

One way to determine whether or not selling a property at auction is to use a method known as the two-thirds rule. Under the two-thirds rule, if two out of three of the components that influence the real estate transaction lean toward auctioning a property, an auction is often the best course of action. What are these three components?

Market: Properties tend to do well at auction during a sellers' market, when there is a lot of demand but low inventory. Auctions can also be ideal if the market is sluggish, in transition, or if the property is unique enough to stand out from the other options available.

Seller: Sometimes, the needs of the seller strongly influence whether or not they should auction a property. Sellers who want to sell quickly, or who want to get the best price possible for their property within a certain window of time should consider an auction.

Property: The property itself can influence whether or not an auction is the best route to take. Properties that are challenging to appraise, that are unique or that have long sat empty are all usually good matches for a real estate auction.

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