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What’s the difference? Private treaties versus auctions

So you’ve found your dream first home. Huge! Let’s get it. Not so fast, you… Before you can make it yours, you’ll need to pay attention to how it’s being sold – because the two main selling styles are pretty different. Will it be an auction or by private treaty? Does it matter? For a first home buyer, there’s a chunk to know and understand about how each of these selling styles works. So, let’s go through their ins and outs.

Private treaties 101

Price

A listed price for a private treaty sale is the price (and not a range, like an auction) the vendor will likely accept to sell their property. The price gives prospective buyers a good indication of how much they should offer noting it might shift during the negotiations. This means that the listed price could be an accurate reflection of what you’d pay if you made an offer and were successful – so you can be more confident searching within your budget. Of course, there’s paperwork and negotiations (if you’re up for a haggle), but if you fall in love with a place and the listed price is right, then you’re closer to living that first-home dream.

Cooling-off period

Got a bit hot when you made the offer and want to back out of a private treaty?

You might be able to (well, in most states – Western Australia and Tasmania don’t have mandatory cooling-off periods). A cooling-off period basically means that after you sign and exchange contracts and pay a deposit on a property, you can back out – provided you’re still in the cooling off period, you offer written notice and you may have to pay a penalty fee.

So, if you hadn’t quite got all your financial ducks in a row but dived in with an offer, you might be able to step back and say, “Whoa, okay, I’m not quite ready.” You need to say this within a certain time, though, which can be anything from two to five business days, depending on the state you live in, after signing the contracts.

In some states it is possible to contract out of the cooling-off period, so check your contract carefully before you sign if you wish to preserve the cooling-off period.

Contract of sale

Whether your offer is the asking price, a little below or a little above, you’re generally in when the seller accepts it. What comes next makes it officially official: signing the contract of sale. Typically, you will have had this looked over by a conveyancer or a solicitor. You (the buyer) sign first, so make sure the right price is listed on the front page. Then the seller signs. A property is considered sold only once both the seller and the buyer have signed and the cooling-off period has passed.

Conditional or unconditional

Private treaties are different to auctions, which are unconditional (more on that in a bit). With private treaties, you have cooling-off periods and contracts that can be packed full with clauses like ‘subject to finance’ (which basically means the sale will only proceed if your bank will lend to you) or a positive building/pest inspection. You can commit to buy the property ‘subject to’ certain conditions being fulfilled. This is known as a conditional offer, and it means you agree to buy the property provided all the conditions check out. Check with your conveyancer or solicitor for guidance on this condition.

Stress levels

For some people, auction or private treaty = no stress either way. But for the auction-hesitant, a private treaty can be a little more of a steady, orderly ride.

Auctions 101

Price

As you’ve looked, researched and inspected, you’ve probably noticed that homes being sold at auction are priced by range. The property should sell for roughly within that price range, pending no surprises like a rogue bidder with cash to splash. And while it differs a bit state by state, the range is generally about 10% – like $500,000 to $550,000, for example.

This number is no guess – it’s an educated estimate by a real estate agent (because they’re required by law to give an accurate estimate), and it’s based on recent comparable sales. And since the law requires a real estate agent to be accurate with this stuff, it’s a good guide to go with. As for how price works in action on auction day, here’s something to keep in mind: once bidding has reached the reserve price (that is, the minimum price that the seller will sell for), any bid beyond that means that if you put in the last bid, you have committed to buy.

Cooling-off period

The words ‘auction’ and ‘cooling-off period’ don’t really go together in the same sentence. Yep, auctions do not have cooling-off periods. If you’re the successful bidder at an auction, then you are committed to buy. So make sure you arrive completely prepared to see it through.

Contract of sale

Speaking of commitment… if you’re the winning bidder on auction day, be prepared to sign the contract of sale and pay a deposit of around 10% then and there.

Conditional or unconditional

When the auction bidding gets going, bids are unconditional and not subject to finance (you should have finance ready to roll) or any other condition.

Stress levels

The added competition and pressure of an auction can be a bit much for some of us. That’s cool. You do you. But if you’ve found the perfect home and it’s going to auction, it will be a great help gathering as much information on the auction process as possible and getting good advice from an expert. The more you know, the easier it will be.

The biggest differences between private treaty and auction

Price

Private treaty: A price set by the vendor or seller

Auction: An estimated price range outlined before bidding for the property

Cooling-off period

Private treaty:  

Auction:  

Contract of sale

Private treaty: You sign when the seller accepts your offer

Auction: You sign on auction day

Conditional or unconditional

Auction: Always unconditional

Private treaty: Can be both, but ‘subject to finance’ is a common condition

Stress levels

Private treaty : Medium stress. However, you may have more control, as you may be able to tailor the contract to your needs via the inclusion of ‘subject to’ clauses and may have a better understanding of what you are getting into

Auction : High stress. There’s less control and the auction takes place within a couple of hours on one day, so things move quickly.