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Buying a property at auction vs private treaty

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Buying a home is as exciting as it is challenging. There are so many things for buyers to consider – including the process itself.

Some buyers will prefer the transparency of an auction, while others will prefer the calmer nature of a private treaty campaign.

Here are a few pros and cons to consider.

Buying a property at auction

An auction consists of prospective buyers gathering to bid on a property.

The individual who bids the highest at the end of the auction purchases the home provided the bid matches or exceeds the ‘reserve’ (or minimum) price set by the vendor.

The pros of auctions

  • Auction campaigns often take less time than private treaty campaigns.
  • The sales process is transparent, so you know exactly how many rivals you have and what they bid.
  • If no bids are made at or over the reserve price, the property may be passed in. In that case, the highest bidder may have the opportunity to exclusively negotiate with the vendor.
  • The pressure is on and everything moves very quickly, especially for inexperienced buyers. But you can get an edge on your rivals by allowing experienced representatives to bid on your behalf.

The cons of auctions

  • The buyer won’t know what the reserve price is until it’s reached on auction day.
  • Depending on the state/territory of the auction, there may not be a cooling-off period for the winning bidder.
  • The nature of an auction encourages competitive bidding, so prices can increase quickly and excited buyers might end up overpaying.
  • Auctions often create a greater sense of tension and pressure than private treaty campaigns.
  • The winning bidder may have to pay the deposit immediately after the auction is closed.
  • The buyer can’t cancel the purchase if they discover problems after the auction or they can’t get finance.

Buying a property through private treaty

A private treaty sale is the most common type of sale in Australia. Under this process, the vendor sets a price and their agent negotiates privately with potential buyers until the property is sold.

The pros of private treaty

  • Private treaty tends to allow more room for negotiation.
  • The buyer does not need to make snap decisions, so it generally involves less pressure and tension than an auction setting.
  • There is a cooling-off period for the buyer, where they can change their mind after the offer is accepted.
  • Depending on the state/territory where the property is located, the buyer may be able to carry out a pest and/or building inspection during the cooling-off period, and for a fee, withdraw the offer should anything be found to be faulty.
  • Deposits are paid when contracts are exchanged.

The cons of private treaty

  • The price on the property may go up if other potential buyers put in higher offers.
  • When the seller accepts the buyer’s offer this does not mean the deal is closed; it’s only finalised when contracts are exchanged.
  • In some states, even if the buyer’s offer has been accepted by the owner, they can still sell the property to someone else before contracts have been exchanged.
  • A buyer could be drawn into a non-transparent bidding process intended to push the final sale price up significantly. For example, the seller’s agent contacts a potential buyer stating that a higher bid has been made by another interested party, thus encouraging them to increase their initial offer.
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