Auction involves a short, sharp and intensive marketing campaign of a property without a price. This is to test the market to see what buyers, in a competitive situation, are prepared to pay to become the new owners of that property.
Marketing with a price limits what a keen buyer may pay. Once a listing price has been established for a property, a ceiling has been placed on what a buyer expects to pay for it. Auction, on the other hand, offers a real opportunity to get more for a property than the seller might expect.
There are three opportunities to sell a property using the auction method:
In the lead-up period high profile auction marketing will highlight the property, producing the greatest exposure during the period when enquiries are likely to be at the highest level.
The auction itself is the shortest part of the process but it is the best opportunity to sell during competitive bidding in an open arena.
Post-auction period - some people believe that if the property does not sell on the auction day then the auction system has failed. This is not true. Stage three provides opportunity to negotiate with those who may need to sell another property or arrange finance before they can commit themselves unconditionally.
Setting A Reserve Price
The reserve price is the lowest amount you are willing to accept for your property. Before bidding begins, advise your agent what you nominate as the reserve price. This is usually not told to the prospective buyers.
If the highest bid is below the reserve price, the property will be ‘passed in’. You will then either try and negotiate a price with interested bidders or put the property back on the market.
If the bidding continues beyond the reserve price, the property is sold at the fall of the auctioneer's hammer.
The successful bidder must sign the sale contract and pay you a deposit on the spot (usually 10%). There is no cooling-off period for anyone who buys a property at auction. If the property is passed in at auction but contracts are exchanged on that same day, the cooling-off period still does not apply.
Exchanging sale contracts is the legal part of selling a home and happens regardless of whether you sell your property by private treaty or auction.
There will be two copies of the sale contract: one for you and one for the buyer. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. At the time of the exchange, the buyer will be required to pay a deposit, usually 10% of the purchase price.
The contract exchange is a critical point in the sale process:
- The buyer or seller is not legally bound until signed copies of the contract are exchanged.
- Buyers of residential property usually have a cooling off period of five working days following the exchange of contracts during which they can withdraw from the sale.
- If the agent arranges exchange of contacts, the agent must give copies of the signed contract to each party or their solicitor or conveyancer within 2 business days.
- The cooling off period can be waived, reduced or extended by negotiation.
- There is no cooling off period for sellers. Once contracts have been exchanged, sellers are generally bound to complete the agreement.
- There is no cooling off period when purchasing at auction.
When you sell your home by private treaty, you set a price and the property is listed for sale at that price. In general, the price is negotiable with the seller often asking a higher amount than they expect to sell the property for, and the buyer making an initial offer much lower than the asking price.
The process of a sale by private treaty offers the following benefits:
greater control over the sale
time to consider offers by potential purchasers
the ability to extend the time for which your home is for sale indefinitely
potential purchasers must make offers for your property 'blind', without knowing what other buyers think it is worth.
Selling privately is often just as tense as a public auction, and you will be faced with important decisions when you are presented with offers which are lower than your asking price.
There are risks with selling by private treaty which also should be considered:
if the price you set is too high, your property may not sell
if the price you set is too low, you may miss out on maximising the selling price.
You should also be aware that when a property is sold by private treaty, the buyer has a five day cooling-off period during which they may withdraw from the sale.
Settlement is the conclusion of the sale transaction and usually takes place about six weeks after contracts are exchanged.