Auction or Private Treaty
I often get asked what’s better, auction or private treaty? There is no set answer, of course, as it really depends on the house and the current market. An auction is certainly better if you have a set deadline because of finance or moving. But an auction can be more expensive and stressful. In a strong market like we are experiencing now, an auction can sometimes pay dividends.
In this article I want to give some advice to both auction holders and auction bidders.
Many buyers don’t love auctions because they believe properties will always sell at a high price. That is not necessarily true and some auctions can deliver a bargain. Others come armed with strategies, like holding off on bidding until the last second or when the property is declared on the market. An auction is a most simple process: whoever is the last person standing gets the house. Lets not complicate it too much. But there are some simple rules and strategies that I do employ. Something is working as the last six auctions I have attended, I have won for my clients.
There are a few principles anyone attending an auction needs to be aware of:
A vendor’s reserve is not the price a seller is happy with but the worst price they will sell for. The role of the reserve price is a misconception to many vendors and buyers. Buyers believe it’s what the owners want, and vendors sometimes think it should be the price that gives them reason to celebrate – it’s actually not, its often “the worst case scenario”.
On the market
When the reserve price is reached the auctioneer will say the property is on the market, which means the vendors are ready to sell at this price.
In order to get the bidding going, the auctioneer is entitled to one bid only. It must be declared as the “auctioneers bid”. If not used to open the bidding, it is sometimes used to declare the reserve price, but not always.
You do not always have to pay the full 10% deposit. With an arrangement with selling agent you can pay a small amount on the day and the balance on the Monday morning. Or a buyer can arrange with their bank for an ETF on the day if you win the keys. Or see DEFT payment in the related BPS story (around the traps). A bank cheque is best but you can also bring a personal cheque as long as you have a bank statement showing you have funds to cover the cheque.
If the property does not sell on the day it is “Passed in”. Don’t always think that everything is going to happen on auction day. A house can be snapped up with a pre auction bid. Or, just as likely, is negotiated with a few interested parties in the following days.
Rights of the highest bidder
Despite what some auctioneers want you to think the highest bidder doesn’t have any official right to exclusively negotiate with the vendor first. Many inexperienced bidders get anxious about not being the highest bidder for fear they will ‘miss out’ on a chance to buy the property if its passed in. Promoting the ‘rights’ of the highest bidder is simply a tactic by the auctioneer to get more money out of potential buyers during the auction in the hope to avoid a property being passed in.
Buyers who don’t want to bid until the property is on the market need to let the selling agent know immediately after the property passes in that they are interested and would like to be included in the post-auction negotiations.
Michael Murray form Byron Property Search is available to assist you with bidding at an auction. It is a flat fee of $750 and includes a property inspection, a comparative Market Analysis, bidding on auction day and follow up negotiation if required.