When you’re buying a home, you’ll see two common sales methods on real estate listings: property auctions and private sales.
Both options have their pros and cons, but many first-time home buyers tend to steer away from auctions as they fear the unknown. Which option is really better? The answer ultimately comes down to personal preference and your financial situation.
Generally, property auctions will be quicker but more intense while private sales can be slower and, as the name suggests, more private.
What are property auctions?
A property auction is one of the most common options for selling a property in Australia. You’re possibly familiar with the concept of an auction from TV. (Don’t worry, not every auction is as crazy as what you see on The Block)
It’s a process where potential buyers can bid against each other in a fast-paced environment. The highest bid wins and that is the price that the property is sold for.
Pros of property auctions
- Quick – Auctions are quick with the bidding process taking place on just one day. If there’s little interest, an auction may take just a few minutes. After the bid is approved, settlements can be finalised in less than a month.
- Transparent – Auctions are much more transparent than private sales. You know exactly how much your competitors are bidding so you don’t wind up offering much higher than anyone else and there’s no way for the selling agent to play games.
- Buyer-led – Though sellers can set a minimum price (the reserve price), auctions are controlled by the buyers and competition on the day.
Cons of property auctions
- Emotions – Bidding is quick and intense. Sometimes this can get the best of people and it can be easy to bid higher than you want just to win.
- Stressful – Auctions are intense situations that come with a lot of stress. If you aren’t someone who handles stress well it might be worth getting someone to bid for you with instructions.
- No Conditions – Once the hammer falls, the sale is done. There are no conditions that you can add in so make sure that you understand what you’re getting yourself into. That means you need to do all your due diligence beforehand.
Things to keep in mind when buying a house at auction
If you decide to buy through a property auction there are a couple of things you should keep in mind.
There is no cool-off period for auctions. If yours is the highest bid, you will be required to sign the sale contract and pay a 10% deposit immediately. If you’re bidding in an auction, make sure you have enough for the deposit on the day. Consider applying for pre approval so you know exactly how much you can afford.
Know your maximum bid. Bidding can be exciting and it’s easy to get lost in the process when other people are bidding higher. Going in with a set maximum bid can help make sure that you don’t overpromise and exceed your budget.
What are private sales?
Private sales, or private treaties, are another method for buying houses in Australia. Sellers set a price, or price range, and the property is often listed with a real estate agent.
As a buyer, you can contact the agent and put in an offer. After negotiating terms and finalising a price, the sale contract is signed by both parties and the sale is complete.
Pros of private sales
- Flexibility – One of the major differences between private sales and auctions is flexibility. Everything is up for negotiation with the sellers and you can take your time nailing down the contract.
- Less emotional – Private sales are generally less intense than auctions. You can make adjustments and you can take your time making an offer.
- Conditions – With a private sale, you can agree on conditions with the seller that you often won’t get with an auction. The sale could be conditional on your loan approval, an independent valuation of the property or damage inspections and repairs.
- Cooling-off period – Depending on the property, there may be a short period where you can withdraw from the purchase of a home. During this time, you can get a solicitor to review your contract to make sure that you are getting everything you wanted and that there aren’t any hidden costs or conditions.
Cons of private sales
- Everyone’s bid is private – The only ones who see all the offers are the real estate agent and the seller. When you put a private sale offer in for a property, you have no idea how many other people are interested or what they’re offering.
- Not guaranteed – Until you have exchanged contracts, nothing is guaranteed. If a higher bid comes in before contracts are exchanged, then you might find your offer declined or new terms being negotiated.
- Competition – Though you can take your time and put in an offer when you’re ready, others may beat you to the punch. It’s always better to act quickly if you know that you can afford the property.
- Price may change – Properties will be listed for a price or price range, but after the seller receives multiple offers they’ll generally go for the highest offer. It can be helpful to make sure you know what other similar properties have sold for so that you can make a reasonable offer.
Things to keep in mind when buying a home privately
Sales are only final once contracts have been exchanged. Negotiations with private sales can take time and you may not be the only one negotiating with the seller. Don’t get your hopes up until the contracts have been exchanged.
Settlements often happen 4 – 6 weeks after contracts are exchanged. After a date is agreed upon by the seller and buyer, both parties can make the necessary changes to the contract before the settlement is finalised.
Do your research to make sure your offer is competitive. Look around at other properties that are similar to the one you want to give yourself a good idea of what your offer should be. Sellers will generally accept the highest offers but as a buyer, you don’t want to offer more than you need to.
Whether you go for private sales or property auctions, make sure that you have done your research and have the necessary money to make your purchase. Each person and property may be better suited to a different purchase method so ensure you chose the best one for you. Consulting all of these factors with a Lending Specialist will put you in the best position to make informed decisions on your next investment.