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Auction vs private sale: how to buy and sell property in Australia

By ,| 5 min read

Whether you’re buying or selling, it’s crucial to get across the different property buying processes. Auctions can be transparent but intense, and private sales can be discreet yet slow.

In this article, we explore the differences between property auctions and private sales for both home buyers and sellers. We’ll start by explaining the ins and outs of property auctions and private sales, then finish off by comparing both property sale options.

What is a property auction?

A property auction is a public gathering of prospective buyers (and spectators) with the intention to bid on a property. An auctioneer who is typically a real estate agent will conduct the event.

There is a very specific process involved with strict rules to be aware of and many of these guidelines vary between states.

For example, registration with photo identification prior to auction is required for bidders in New South Wales, Queensland, the ACT, South Australia and the Northern Territory. Whereas in Western Australia, Tasmania and Victoria, pre-registration isn’t required, so potential buyers can simply turn up on the day to bid.

On the day of the auction, buyers have the opportunity to place bids on the property.

However, this doesn’t mean that lowball offers could get through. Vendors are required to set a reserve price that is the minimum sale price they are willing to accept.

The reserve price is kept confidential – only the vendor and the auctioneer are aware of what it is.

While the specific reserve price isn’t revealed, the auctioneer will announce when it has been met to indicate that the property will now be sold to the highest bidder.

How to set the right auction reserve price

If you’re selling a property, it’s important to think about the price you settle on for your reserve. If you set the reserve price too high, you might not have much success with your auction.

On the other hand, if you set your reserve price too low, you could be forced to accept a lowball offer and potentially miss out on thousands of dollars.

Here are some tips for setting a reasonable reserve price:

  1. Refer to your property appraisal: at some point in your property sale journey, you will have had a property appraisal, an official valuation or some kind of value estimate. This figure can be a good guide to use to set your reserve price, so long as there haven’t been changes to your local property market.
  2. Real estate agent expertise: real estate agents have a lot of insider knowledge into what’s going on in your local market. They can look at recent sales of similar properties to see how they performed at auction and provide advice based on this.
  3. Get an idea of who is interested: speak to your real estate agent about the kinds of buyers who are keen on your property. Figure out just how interested they are – more passionate buyers are more likely to bid high. Of course, you can’t know exactly how someone will bid on the day, but knowing your potential bidders can help dictate your reserve price.
  4. Pre-auction offers: even if you’re prepared to sell your home at auction, you may still receive private offers. You aren’t under any obligation to accept or decline these offers, but they can serve as a point of reference for setting your reserve.

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 and organise before the day. Some of these steps may include:

  1. Organising inspections: you don’t want to buy a dud property, so it’s smart to get a building and pest inspection done before you bid if you’re serious about buying the property
  2. 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 read over this to ensure there are no problems
  3. Get pre-approved: home loan pre-approval can give you a better idea of your bidding limits to prevent you bidding beyond your means
  4. No changing your 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 and/or financial repercussions.

The home loan auction process has a number of bidding rules to follow. To learn more about these and the overall auction process, check out our guide to buying a house at auction in Australia.

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What is a private sale?

A private sale, also known as a private treaty sale, involves buyers making direct offers to the real estate agent who acts on behalf of the vendor.

The vendor will have set an asking price, but prospective buyers can make offers above, at, or even below this figure.

So in a private sale, you wait for offers to come to you. Of course, you are aided by the real estate agency’s advertising campaign (e.g. online property listing websites, real estate store window displays, for sale signs, newspaper features), but you could wait a while for your property to sell.

How does the private sale process work?

There are a few things to know about private sales before you sell or make an offer:

  1. Organise inspections: as with buying at auction, it’s smart to check that the property is in sound condition before you make a formal offer
  2. 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
  3. 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.

Read our guide to property auctions and private sales across Australia to learn more about how private sales work.

Is it better to sell your house at auction or through a private sale?

It’s often difficult to know whether you could get more money for your property by selling it privately or at auction.

The option you go for may depend on your goals and how quickly you want to sell, your personality or the advice of the agent.

Here are some of the advantages of selling your property at auction:

  • If you’re not getting many offers and want the property sold off quickly, an auction can make that possible
  • Auctions can work out well if your property is in high demand – you could end up selling your property for higher than you expected
  • Buyers might get into the competitive nature of the event and their determination to win can increase bids.

Here are some reasons why you might prefer to opt for a private sale over an auction:

  • Auctions can be stressful for everyone involved and there's no guarantee your auction will be successful – your bidders might not hit the reserve price and you’ll have to rethink things
  • Even if bidders do reach the reserve price you set, you could still end up disappointed with the sale price you get
  • Private sales are often better if your property is in an area with lower demand, but it can be a slow process. One benefit though is added privacy – you can keep the sale price to yourself if you’d like.

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Is it better to buy a property at auction or through a private sale?

This question is a less serious one for buyers. Since vendors decide whether to sell their property at auction or privately, you won’t always get to buy in your preferred manner.

Property auctions can be emotional affairs, and impulsive buyers could find themselves placing bids they can’t afford. On the other hand, you can sometimes feel like you’re going nowhere by making private offers – even if you think your offer is generous.

If you aren’t keen on the prospect of bidding at an auction, you may not have to. Most vendors will still accept private offers, and if your offer is competitive enough, you might get to avoid the auction process.

One way to make your offer more attractive is to have your property finance sorted out. This means figuring out your borrowing power, what loan you want, and getting home loan pre-approval.

Lendi’s Home Loan Specialists can help identify your home loan options, give you a better idea of your borrowing capacity and help with mortgage pre-approval. Book an appointment today to get started.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: property prices, first home buyer, auction, private treaty sale, private sale, first home, new purchase, selling property

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