You’ve made the decision to make a move. Whether you’ve got a home to sell before buying, or just buying, there are two general ways that a property is offered for sale in New South Wales. We have also included a third which we occasionally come across in Sydney. It pays to become familiar with each method of sale and to understand auction vs private treaty.
Private Treaty
Under a private treaty sale, the owner sets the price they would like to get for their property. Often, they will interview up to three local real estate agents to get an idea on the value of their home, and with the help of their chosen real estate agent they determine an asking price. The real estate agent will negotiate with prospective buyers individually to achieve a sale as close to this price as possible.
Price
Most of the time, the price is set just above the desired selling price to allow for negotiation. When the market is a balanced buyer/seller market, offers don’t tend to go above the asking price as buyers tend to negotiate down from the asking price, and the level of competition is not as high as it would be at an auction. Buyers may also be at liberty to submit a conditional offer, such as an offer subject to finance and/or a building and pest inspection.
Since the process is less transparent than an auction, some agents will try and create false competition by having buyers bid up against themselves.
If the agent and the vendor prices the home incorrectly, they are at risk of achieving a sale price below what the property is actually worth. The asking price may list below market value, meaning the seller could lose money by under-selling their home. However, if it is priced too far above market value, the property might sit on the market for weeks or months and generate little interest, which often results in the home selling for cheaper than if it was priced correctly at the beginning of the selling campaign.
Contract
The contract for sale on a private treaty sale is entered into when the buyer and seller agree on a price and exchange contracts. The buyer pays a deposit, normally 10 per cent of the agreed price, and sometimes there is a cooling-off period. The cooling-off period allows the buyer to complete due diligence such as legal, building and financial checks, but if they decide not to move forward with the purchase, they will forfeit a small part of the deposit. The length of the cooling-off period and the deposit forfeited varies between states and territories. In NSW, there is a standard 5 day cooling off period with the buyer forfeiting 0.25% of the contract price should they not proceed.
In recent times, it has become common practice in the Sydney market for cooling-off periods to be removed from private treaty deals. With heated competition, the sellers are often in a position to request the purchaser waive the cooling-off period at exchange, which means the buyer needs to obtain all legal advice, compete all relevant inspections (building, pest or strata) and have finance approved before exchange of contracts.
Sometimes, people can be lured into signing a contract when they fall in love with a home at first sight and are worried they may miss out on the home. However, you should offer to pay a deposit and agree with the agent/owner on a cooling off period so your legal representative can review the contract, and you can do your own due diligence.
Time
Private treaty may take longer to sell than an auction campaign, as there is no set date for a sale. Due to no specific date to be working towards like an auction, both the seller and buyer have more flexibility over the negotiation period.
Auction
A sale by auction is a competition in the open market. Potential buyers gather publicly and bid for a property. Participants bid openly against one another, with each subsequent bid required to be higher than the previous bid. The auction is usually conducted by an estate agent, acting as an auctioneer or a dedicated auctioneer. The owner sets a reserve price for auction day and the prospective buyers make their bids, with the home going to the highest bidder (if it is above the reserve price).
Price
After the property has been on the market for the few weeks and before the auction, the vendor will meet with their real estate agent to consider feedback from potential buyers. They will then set a reserve price which is the minimum price they are prepared to sell the property. The reserve price is usually not made public. The auctioneer oversees the bidding process and takes incremental bids from potential buyers. If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer to the highest bidder.
If bids do not meet the vendor’s reserve price and the auctioneer has done all they can to seek more bids, the property may be ‘passed in’ or ‘withdrawn from auction’. Usually, the highest bidder will then get first right to negotiate with the seller.
Before a buyer goes to an auction, they must know what their maximum purchase price is and not let emotion or ego get in the way of their bidding. If they go over their price and need to borrow more, they risk paying for lender’s mortgage insurance and having mortgage repayments that go beyond their budget.
In a sellers’ market, the vendor may benefit from selling at auction and achieving a price above expectations, but in a slowing market, they may have an unpleasant experience and find their asking price is above what the market considers reasonable.
Contract
The most important thing to remember is that there is no cooling-off period. If the gavel comes down, the highest bidder is bound to go through with the purchase and sign the ‘contract for sale and purchase of land’ as prepared by the seller’s solicitor.
If you are bidding at an auction, you must be ready to exchange contracts, pay the deposit and complete the sale. Otherwise, you will lose the full deposit and may be liable for any damages suffered by the vendor. Buyers need to make sure their legal representative has reviewed the contract, they have obtained all relevant inspections (building, pest and strata) and secured finance before auction. Buyers can also negotiate the terms of an auction contract, but this must take place prior to auction day. For example, through their legal representative, the buyer may negotiate a smaller deposit (5 per cent instead of the standard 10 per cent), a longer settlement period (instead of the standard six weeks) or other terms they may consider unfavourable.
If the seller agrees to make certain changes to the contract for a buyer, the vendor’s legal representative will inform the real estate agent who will make the agreed changes to the contract before it is signed and exchanged after the auction, in the event that particular buyer is the successful bidder.
In New South Wales, the difference between private treaty and auction negotiations is that auction contract negotiations must be made public. So, if a buyer and vendor have agreed certain contractual changes prior to auction, the other buyers should be notified and have access to the same conditions, such as a reduced deposit.
The finality of an auction does not need to create unnecessary angst. If due diligence has been completed, an auction shouldn’t be any riskier than buying by private treaty. In fact, as an experienced buyers agent, we find auctions a much more transparent process.
Time
An auction date is set so the vendors and buyers have a date they work towards, which means there is no mucking around on either side. The vendor has the opportunity to sell their property before auction, on the day of auction or, in the event the property is passed in, after the auction.
If a buyer negotiates with the vendor before auction, the contract exchange is normally done with no cooling-off period.
Expressions of Interest
While not a common method of sale, Expressions of Interest (EOI) do pop up occasionally. They are usually used for unique and high-end properties that are hard to price. This sales method can vary from agency to agency, and in our opinion, not as transparent as a straight forward private treaty or auction campaign.
Price
Prospective buyers are invited to make offers by a specific time and date over a marketing campaign spanning several weeks, but the buyer and seller can reach an agreement before then. Serious buyers put forward their best and final offer in writing, which can include terms and conditions such as settlement dates and finance conditions.
Buyers can make a conditional offer, subject to such things as a building inspection or finance. All offers are confidential and the seller has control over the process.
If no acceptable offers are received by the EOI closing date, the property could go back onto the market for private sale. The vendor has now got some feedback from the market so will be in better position to determine an asking price.
Contract
If the buyer’s offer is acceptable to the seller, the buyer is informed and the contracts are exchanged, much as they would be under a private treaty sale and depending on which conditions have been agreed upon.
Time
An Expressions of Interest campaign usually spans over a number of weeks. Since the property is most likely unique, the number of targeted buyers will be less so they take longer to sell.
Summing up: Auction vs Private Treaty
Navigating auction vs private treaty can feel overwhelming, especially when the stakes are so high. Auctions, with their competitive and fast-paced nature, require buyers to be fully prepared before bidding starts. Without the safety net of a cooling-off period, buyers need to ensure their finances, legals, and inspections are all in place beforehand. On the other hand, private treaty sales allow for more time and flexibility but can lead to uncertainty, especially when dealing with price negotiations and potential hidden competition from other buyers.
This is where Future Habitat Buyers Agency steps in to make the process easier. We specialise in guiding families through methods of sale, ensuring you are fully informed, prepared, and confident at every stage. By taking the time to understand your needs and ensuring you have all the right advice, we reduce the risks and stress that come with buying a home. While it’s tempting to navigate the process on your own, the experience and knowledge we bring will save you time and help you avoid costly mistakes. A home you’ll love is within reach, and we’re here to help you find it in the most seamless way possible.
If you would like to more about how Future Habitat can help you on your home buying journey, click on the button below for a no-obligation consultation.
Disclaimer:
The information provided in this blog is general in nature and does not constitute financial or real estate advice. It is recommended that you consult with a qualified financial advisor or property expert before making any decisions based on the content of this blog. Future Habitat Buyers Agency does not accept liability for any loss or damage incurred as a result of reliance on the information provided.