When it comes to selling your property, making the decision and choosing an agent is the only half the battle. Once you’ve decided to sell you must then decide which is the best method of sale for your property to achieve your desired outcomes. There are three main options when the time comes to sell. Homeowners can choose to put an asking price on their property, which is known as Private Treaty, or they might choose to sell by Auction or even via an Expression of Interest (EOI) campaign. Each has its own pros and cons and ultimately the choice must be what you feel most comfortable doing. We have broken the options down in a little more detail to help make your decision-making process a little easier.
1. Sale by Private Treaty
With a sale by Private Treaty, the seller and their agent decide on a likely price range and then offers can be made to the seller. Usually the property will be advertised for a set period of time and interested buyers can make an offer around or above the asking price, depending on the level of interest. The advertising period is not fixed and so less urgency is created than with an Auction campaign, but this make some people feel more comfortable and buyers certainly prefer there being less pressure on them. However, if a property starts with too high an asking price, is advertised for too long, or repeatedly, it can be the kiss of death as buyers start to wonder why the property isn’t selling. With a Private Treaty sale, there is no fixed date by which the property will be sold by, unlike an Auction where ideally it will be sold on Auction day.
Offers are made to the agent who will then liaise between the buyer and seller to negotiate on an agreed price. There can also be negotiations around the terms of settlement stipulated by the contract, but once everything is agreed upon and the contracts signed, there will be a cooling off period of 3 to 5 days (depending on where you are in Australia). During the cooling off period, the buyer can take the time to conduct due diligence on the property through their solicitor, have building and pest inspections done and then, change their mind and pull out if the deal looks less sweet. Some buyers use issues that turn up during the cooling off period as a bargaining chip to drive down the price agreed on the contract, knowing full well that the home owner has mentally committed to the sale and now has their highest motivation to hold the deal together. There is a chance that a small amount of their deposit will be sacrificed this way though, so it’s a good idea to do as much research as possible before making an offer.
One of the downsides of Private Treaty sales is that buyers often don’t know if they are paying ‘the right price’ or not. At an auction, the perceived value the market is placing on that property is in full view. When there’s more than one interested party in a Private Treaty sale, you have no clue as to who the other bidders are, or what they’re offering as the process can become quite opaque! You may end up with a bargain or you may end up paying well above the value of the property, simply because the price was driven up by your anonymous competitors.
2. Sale by Auction
In the case of an auction, the property is offered for sale publicly on a specific date, after being advertised for several weeks beforehand. The Auction is usually held at the property and a reserve price established beforehand, which is the price the bidding will start at once the auction commences. There are stories of people who went out to get milk and accidently bought a house on the way home, however this is definitely not the recommended approach. If a buyer is considering buying a house at Auction, they should take the time beforehand to research the property, ask any relevant questions, request inspections to be done or to view reports and secure finance; so they can confidently sign the contracts and hand over their deposit on the day, if they are the successful bidder. In the case of an Auction, there is no cooling off period so potential buyers should be as prepared as possible to make their offer, seal the deal and walk away without regrets.
An Auction is led by a licensed Auctioneer and must adhere to a strict set of guidelines. Once the reserve price has been established, buyers can contribute bids in increasing increments until the highest bid is achieved. If the reserve price is not reached, the highest bidder will be offered the first right to negotiate with the vendor – through the agent - to reach an agreeable sale price. The advantage of an Auction is that buyers must have completed their enquiries by Auction day and can get a tangible sense of the market’s opinion of the value of the property, through the unfolding of the auction. They can see their competition, watch the bids and get perspective on exactly where things sit. It’s also great for the seller as competition at Auction can drive a price up to well above its expected value. If the property fails to reach reserve however, or get any bids at all, it will be passed in and the sellers left with no result. Commonly, the campaign will then transition to a sale by Private Treaty and an asking price set. Typically, properties marketed by Auction that do not sell on the day, do sell soon afterwards. The statistics consistently show that Auction properties sell with fewer days on the market.
3. Expression of Interest
Some residential properties are sold via the Expression of Interest (EOI) process but this is far more commonly used for commercial property and is not generally recommended in residential applications. A property will be listed and promoted for a month or so and then potential buyers are invited to submit an Expression of Interest (EOI). Similar to an Auction, the EOI period has a specific finalisation date, so sellers know that they will have one or a range of offers to consider on that date (unless no EOIs are received or accepted). Offers are submitted in writing and along with their desired sale price, should include terms and conditions like settlement dates and details of financing as well as any specific exclusions.
If no acceptable EOIs are received, the property rarely goes through a 2nd round of EOIs, but will go to private sale or auction instead. Given the popularity and success of sales by private treaty and auction, it might seem logical that an EOI might be a good choice – as it in some ways is a combination of both. Confidential offers can be made to the seller, but there is a fixed sale date for everyone to work towards. However, sale by EOI is the least recommended of the three for residential purposes as it is not well understood by residential buyers. With commercial EOIs, the process is more straight forward. A commercial property either stacks up financially for an enterprise or it doesn’t, so it’s not so hard to establish what it is worth to a business. However, for residential buyers, this is much more difficult and can create a very uncomfortable environment from a buyers perspective. Some feel that the homeowner hopes the buyer will be so in love with their property that they will offer a significantly higher price than the property’s market value because they have one chance, and one chance only. This can be seen as insulting and turns a lot of buyers away. At least with Auction, they have the opportunity to increase their bids when they see open competition. With EOI, they can only expect a phone call from the agent telling them they were successful or that they missed out.
As mentioned earlier, the final method of sale that is chosen comes down to the seller’s own preferences and should not be decided based on pressure from an agent or others. However, it’s very important that you discuss your options and listen carefully to your agent’s recommendation.