You have met with your agent and he has made some suggestions around how you should best go about selling your beloved property. Perhaps he has even mentioned the dreaded ‘A’ word – AUCTION!! Relax, let me explain in detail what the two most popular sales processes offer and why one may likely be the better option for your home.
Let’s start with the obvious; an auction in its purest form is a competitive buying arena where buyers attempt to out bid / out buy each other in order to win the property. You will no doubt have seen the staggering auction clearance rates in the southern states and perhaps even have watched massive prices being achieved on popular DIY / renovation TV shows. Not every auction is like this but there are still many convincing reasons that this is perhaps the most effective way to market your property.
The two most important ingredients in a successful sales strategy are competition and emotion. Emotion is what the buyers feel when they walk through the front door and connect with the home or find the property based on a location that they love or need to be in. Competition is the feeling buyers experience when they realise that there is another potential buyer who also likes the property. There are several ways of creating competition and emotion around a property and the first way is via open homes. At an open home, buyers are given 30 – 45 minutes typically to view a property. It is often here that a buyer realises that there are others interested in the property and this creates the competition.
An auction strategy opens the door to the idea that there is potentially more than one buyer for your property. It also creates urgency around the transaction on the seller’s terms. The seller provides the date, the deposit amount and the settlement time frame (terms) and asks buyers to front up with their best offer on auction day and battle it out against other buyers. This auction day competition is the best chance of achieving a premium as there is no ceiling on the price and a skilled auctioneer will create a comfortable buying arena where buyers are motivated to pay their highest possible price. It is rare that when a price is put on a home via the private treaty method that a higher than listed price is ever achieved. Usually, a lower than listed price is achieved.
The auction process in Qld does not list price ranges or price guides, meaning that buyers who may be shopping to a strict budget are encouraged to view the property, as they are not exactly aware of the asking price. It enables the buyer to connect with the home, the location and its offerings without making a decision based purely on the numbers.
Some reasons that some sellers may consider the auction process initially is that their property may be very unique and difficult to price. The auction process is effective in capturing buyer feedback throughout the campaign and will enable the seller and agent to work together to set a reasonable reserve and achieve a fair market price. Conversely, in the case that the home is an entry level home ideally suited to first homebuyers or downsizers, there may be many buyers trying to enter the market at this level. The auction process in this case will create the competition and achieve the highest result. For example, if your agent has appraised this style of home at $375,000, the private treaty process may achieve this price but without a sense of urgency and without obvious competition. If, however, 3 or 4 buyers were to compete for the home in an auction situation, the possibility of achieving two, three or even five thousand more is strong.
The auction contract is a cash, clean and unconditional contract meaning that at the fall of my gavel on auction day, the house is sold! On auction day, which is the date specified by the seller at the appointed time, all buyers must have completed their due diligence including organising any finance, researching titles and easements and organising building & pest inspections. There is also no cooling off period under auction contract conditions which should only give the seller absolute confidence in achieving the best possible price for their home in a very efficient time frame.
Throughout the auction campaign, which is typically 30 days, should a buyer make an offer that is hard to refuse, as the seller you can still accept this offer. It is, however, strongly advisable that the buyer fulfil any and all contract conditions prior to the auction day in order not to lose any campaign momentum should the contract fall over and not complete. The best strategy here is to encourage the buyer to attend the auction and make his/her offer via a bid under auction conditions.
In the scenario where you have stuck steadfastly to the process and the home has not sold, take heart! The auction process is just that, a process and not specifically an event. The data shows that up to 20% of the homes that do not sell under the hammer on the day go on to sell within 14 days of the auction. There can be a variety of reasons for this but the fact remains that the auction process with its urgency and date specific method has flushed out buyers to work with who may need to conduct additional due diligence, be offered extended or reduced settlement terms or organise finances.
A private treaty process of sale is vastly different to auction and can be effective in some situations. For instance, if the property has an overwhelming weight of evidence as to what the price should be or where the market would see it, a private treaty can be an effective method by which to sell. As an example, if a two bedroom unit on the second floor of a complex has had multiple identical units sell within a 12 month time frame, it is likely that purchasers and investors know approximately where the value lies. If the unit is not likely to have multiple interested parties, a private treaty process may be effective in attracting the best purchaser who is able to conduct his/her own research without fear of missing out.
The only myth I would like to dispel is the cost of marketing and advertising for homes sold by either process. Every seller who is serious about selling their property must commit to the best promotion of the house by a comprehensive mix of print and online media. Whichever method you choose to sell by, you want to achieve the highest price in the shortest amount of time. The only difference in costs between a correctly executed campaign via private treaty or auction should be the cost of a skilled auctioneer who can effectively extract every dollar from the market.