When selling a property, the choice between a private treaty sale and an auction can significantly impact the outcome of the transaction. Both methods have distinct advantages and disadvantages, and understanding them will help you choose the best approach for your circumstances. This article will explore the key differences between private treaty and auction, their respective benefits, and their drawbacks, helping you make an informed decision.

What is a Private Treaty Sale?

A private treaty sale, also known as a private sale, involves the seller listing their property for a set price or a price range. Buyers can then submit offers, and the seller, with the help of a real estate agent, negotiates with interested parties. The sale is private, as the negotiations happen behind closed doors, without a public bidding event.

What is an Auction?

An auction is a public sale where potential buyers bid against each other to purchase the property. The auction is typically held at a set time and date, with the property being sold to the highest bidder, provided the bidding reaches or exceeds the seller’s reserve price. The process is competitive and transparent, with all bids made in front of the auctioneer and other interested buyers.

Key Differences Between Private Treaty and Auction

1. Price Setting
   • Private Treaty: The seller sets an asking price or a price range upfront. Buyers then submit offers, which may be negotiated.
   • Auction: No price is advertised. Instead, the property is sold to the highest bidder, as long as the bid meets the reserve price. Sellers may choose not to disclose the reserve price to buyers beforehand.
2. Negotiation Process
   • Private Treaty: The negotiation process is flexible and ongoing, allowing both the buyer and seller to discuss and adjust terms. It provides time for both parties to seek finance, conduct inspections, and finalise details.
   • Auction: Negotiation happens in real-time during the auction. Once the highest bid meets or exceeds the reserve, the sale is unconditional. There is no further negotiation on price after the auction ends.
3. Sale Conditions
   • Private Treaty: Conditions such as finance approval, building and pest inspections, and other terms can be included in the contract. The sale is typically subject to these conditions being met.
   • Auction: The sale is generally unconditional. The winning bidder must immediately sign a contract and pay a deposit, with no cooling-off period or conditions attached. Buyers need to have financing and inspections arranged beforehand.
4. Timeframe
   • Private Treaty: The property can remain on the market for an extended period, allowing the seller to wait for the right offer. There is no set end date.
   • Auction: Auctions are scheduled for a specific date, creating a sense of urgency. Properties can be sold before the auction if a compelling offer is made, but the auction date serves as a deadline.

Advantages of a Private Treaty Sale

1. Price Control One of the main advantages of a private treaty sale is that the seller has more control over the asking price. There is room for negotiation, and the seller can adjust the price or terms based on feedback from buyers.
2. Flexibility Private treaty sales offer flexibility in both the negotiation process and the contract conditions. Sellers can take their time considering offers, and buyers have the opportunity to negotiate terms such as settlement dates or additional clauses like subject-to-finance.
3. Less Pressure Buyers and sellers often find private treaty sales less stressful compared to auctions. The absence of a set deadline allows both parties to proceed at a comfortable pace, reducing the pressure of making snap decisions.
4. Privacy The negotiation process in a private treaty sale is confidential. Unlike auctions, where bids are public, the price discussions and offers remain between the buyer, seller, and agent.

Disadvantages of a Private Treaty Sale

1. Extended Time on Market While having no set deadline can be an advantage, it can also mean the property sits on the market for longer than expected. A property that lingers on the market can lose momentum and buyer interest, leading to lower offers.
2. Uncertainty Around Offers Buyers may submit offers that are below the asking price, which can lead to lengthy negotiations. This uncertainty can be frustrating for sellers, especially if multiple lowball offers are received.
3. Risk of Underselling Without competitive pressure, there is a risk that the property could sell for less than its true value. In markets where buyer competition is high, this could result in missed opportunities for a higher price.

Advantages of an Auction

1. Transparency and Competition Auctions create a transparent and competitive environment, where buyers bid against each other in real-time. The competition can drive up the price, potentially exceeding the seller’s expectations. Buyers can see how much others are willing to pay, which can motivate higher bids.
2. Definitive Sale Date An auction has a fixed date, creating a sense of urgency. Buyers know they need to act quickly, which can result in a faster sale. Sellers also have the certainty of knowing when the sale process will conclude.
3. Potential for Higher Price In a competitive market, an auction can result in a higher sale price than a private treaty. If multiple buyers are interested, their bidding could push the price beyond what would be achieved through private negotiations.
4. Unconditional Sale When the auction concludes and the highest bid meets or exceeds the reserve price, the sale is final. There are no conditions attached, and the buyer is committed to purchasing the property immediately.

Disadvantages of an Auction

1. No Guarantee of Sale If the highest bid does not meet the reserve price, the property may not sell at auction. In this case, the seller will need to negotiate with interested buyers after the auction or re-list the property.
2. Pressure on Buyers Auctions can be intimidating and stressful for buyers, who are required to make quick decisions. The high-pressure environment may deter some potential buyers, reducing the number of bids.
3. Cost Auctions often require additional costs for marketing, hiring an auctioneer, and hosting the event. These expenses can add up, and if the property doesn’t sell, the seller may have to incur further costs to re-list the property.
4. Uncertainty for Sellers Sellers may feel uncertain leading up to auction day, as there is no guarantee that the property will sell. Additionally, the final sale price can be unpredictable, especially if there isn’t strong buyer competition.

Which Method is Right for You?

Choosing between a private treaty sale and an auction depends on several factors, including your local market conditions, the property’s appeal, and your personal circumstances. Here are a few considerations to help you decide:

• Market Conditions: In a hot market with strong buyer demand, auctions can yield great results due to competitive bidding. In a slower market, private treaty sales may be more suitable, allowing time for negotiation.
• Property Type: Unique or highly desirable properties often do well at auction, where buyers are more likely to bid emotionally. For more standard properties, a private treaty sale may attract a broader range of buyers.
• Seller’s Circumstances: If you’re looking for a quick and definitive sale, an auction might be your best bet. However, if you prefer a more flexible process and aren’t in a rush, a private treaty sale could provide more control over the outcome.
• Buyer Preferences: Consider how your target buyers are likely to behave. Auctions can be off-putting to first-time buyers or those requiring conditional offers. Private treaty sales may appeal to these buyers as they offer more flexibility.

Conclusion

Both private treaty sales and auctions offer distinct advantages and disadvantages. A private treaty provides flexibility, privacy, and control over price, but can lead to extended time on the market and lower offers. Auctions, on the other hand, generate urgency and competition, often leading to higher prices but come with the risk of no sale and increased pressure on buyers.

Ultimately, the best method for selling your property will depend on your unique situation, market conditions, and preferences. Consulting with an experienced real estate agent can help you determine which approach is most likely to achieve your desired outcome.