A common request of real estate agents is to explain the pros and cons of selling your home at auction rather than negotiating with buyers in a private treaty situation.
It’s a completely justifiable demand. While auctions are super-popular in the bellwether markets of Sydney and Melbourne, this approach gets a more lukewarm reception in the other capital cities.
So, what’s the deal with auctions? Are they really the optimal way to sell your most significant financial asset?
The auction process really starts with the mindset of the agent. While few colleagues would ever refuse a commission to sell by private treaty, some agents are rusted-on fans of the auction.
They view parties interested in your property as potential bidders at an auction, and their objective is to have them line up in the same place at same time to “battle it out” for your property.
Many believe this is the best possible scenario for maximising the value of a residential property.
Of course, not all agents subscribe to this process. They would argue the same competition can exist when negotiating a private treaty sale between multiple parties.
Here are some pros and cons of an auction:
It’s public – Bidders can see who is bidding and the level of bidding. You don’t get this transparency in a private treaty sale. An auction can give potential buyers more confidence in the process – and from a seller’s perspective, that’s a good thing.
Game-on – Auctions can be pressure situations. Successful auctions feed on the emotion of FOMO (Fear of Missing Out). Agents who love auctions will tell you this can drive values higher.
Done deal – Properties sold at auction are done so “unconditionally”. Buyers have their opportunity before the auction to get a building and pest inspection, valuation report and to ask their solicitor to assess the contract of sale. From a seller’s perspective, when the hammer falls the deal is done.
Vendor bid – One frustration from a buyer’s perspective is knowing whether your bids are above the reserve price. Eventually, the auctioneer will reveal the situation. If bids are not meeting expectations, the owner has a “vendor bid”. It is this bid that signals the reserve price threshold. If anyone bids above it, the property will be sold.
Passing in – In today’s market, around one-third of properties that go to auction fail to sell. Auction success rates can swing quite sharply. In the last few weeks they have ranged from 65%-75%, according to data from the portal, Domain. If you fail to achieve your reserve price, that’s not the end of the story. Your agent will begin negotiations with the highest bid. Invariably, they’ll strike a deal within a few days.