Every vendor wants to achieve the best possible price for their property when it goes to market; however the majority remain confused about the best sales technique to get results. There’s a good reason everyone is so confused – there is no absolute right or wrong method. As someone who buys properties for a living, I have discovered the best method of sale will depend on the property type, the area you are selling, and your temperament.
If you want to choose the best way to sell your property, it pays to understand both the different techniques of sale, and their advantages and disadvantages.
Auction. An auction opens at the price the market determines, and relies on a sense of urgency and competition. In this emotional environment buyers may bid more than they had intended, leading to a fantastic result for the vendor.
The relatively short campaign period for auctions – generally four weeks – is seen as an advantage by most vendors. Unlike private treaty campaigns, where the property can sit on the market for a lengthy time period, you will be working to a brief and defined time-frame with a fast turnaround. If your reserve is realistic, the market is good, and you are selling in an area where buyers are used to auctions then you can expect the property to sell on the day of auction. Even if the property doesn’t sell on the day, it often sells within a few days so you will still achieve a fast turnaround. This works well for high demand properties such as units in inner-urban locations.
Auctions do have their downsides – choosing to go to auction in a non-competitive market or in an area where most people prefer a fixed price could lead to a lower final price than you had hoped for.
This is dangerous if you have to sell, as the price starts low and could remain low. If you set an unrealistic reserve or are selling in a ‘down’ market, the property could be passed-in and gain a reputation as overpriced or stale. A good agent can help you set a realistic price for the property and avoid this pitfall.
Private Treaty. Private treaty sales are popular with vendors and buyers alike – it is relatively low-stress and everyone knows what they are in for. In a private treaty sale the vendor works with their agent to set a price for the property. Sellers may offer to pay less than the listing, but it is up to the vendor’s discretion whether to accept this.
In conservative markets you will generally achieve a better result selling by private treaty compared to auction. Buyers in areas where auction is not common tend to be afraid of auction and more open to the fixed price offered by a private treaty sale.
The downside of private treaty is there is no chance of selling your property for a higher price than the value you set. With no fixed time-frame for the campaign, your property may sit on the market for an extended time; and you will need to factor any additional marketing costs for this time into your budget.
As with auctions, it is important to work with a reputable agent who will help you set a realistic value for your property. Buyers are savvy about the price they should be paying, and asking for too much for your property could give it a bad reputation. If you need to sell, you may actually have to drop the price and get a lower final result than if you had set a realistic value in the first place.
Expressions of Interest: In an ‘expressions of interest’ campaign, you invite buyers to submit an offer based on what they think your property is worth. Similar to an auction, the property is marketed strongly in a defined time period. Unlike in an auction, where a guide or reserve price may be known, marketing for private treaty sales is usually done without a price or only a broad price range. Interested parties do their searches and inspections before submitting written offers by a due date. The seller can consider all offers and choose the highest offer. In an ‘expressions of interest’ campaign you maintain a higher degree of control over a longer time frame than you would have in a traditional auction and are able to go back to the bidder and ask them to increase their offer if you do not feel they have met your expectations.
Advantages of ‘expressions of interest’ sales are the defined time frame and the confidentiality. During an auction, bidders can seek to outbid rivals by offering as little as $1.00 more; whereas in an ‘expressions of interest’ campaign bidders are ‘blind’ and have no idea how close to the mark they are. The idea is that, if buyers want the property enough, they will submit the best offer – and this could greatly exceed the amount offered by the second-highest bidder.
There is a chance the discreet nature of an expressions of interest campaign would deter buyers who might be worried about bidding too high. For this reason vendors opting for a private treaty campaign often have a property they are willing to leave open to the market until they find the right buyer.
Luxury estates and one-of-a-kind properties targeted at buyers for whom money is not an object could be the type of properties to sell via ‘expressions of interest’. If you are selling a standard suburban home you may be better off going to auction or selling by private treaty, depending on the area and your adversity to risk.
About Chris Gray
Chris Gray is CEO of property portfolio company Empire. He is a leading property expert who provides opinion and commentary regularly on Sky Business News, A Current Affair and other news media. He is a regular columnist for Real Estate Journal (REINSW), Queensland Property & Lifestyle (REIQ), Your Investment Property and other property media. Through Empire, Chris today builds property portfolios for time-poor investors – searching, negotiating and renovating on their behalf. For a FREE copy of his latest book, The Effortless Empire: The Time-Poor Professional’s Guide to Building Wealth from Property, visit www.yourempire.com.au.