Auctions are popular across Australia because the process takes price out of the equation for the pre-auction period, leaving buyers to evaluate the property independent of price. The auction process then provides buyers and sellers with a good idea of what the market is prepared to pay. With a private sale, vendors run the risk that buyers will turn their back on a property they are interested in because the initial asking price is too high. This is why a spot-on asking price is crucial when selling by private sale. Like any sales method, there are pros and cons to selling or buying a property via auction – and issues that you should be aware of.
Upsides of selling via auction
With some property markets still slowing and showing lower than previous clearance rates, it is natural that vendors are questioning the advantage of selling through auction. While auctions are not ideal for all properties, a slow market is no reason to shun the system.
With some property markets still slowing and showing lower than previous clearance rates, it is natural that vendors are questioning the advantage of selling through auction. While auctions are not ideal for all properties, a slow market is no reason to shun the system.
Many high-quality, inner-city properties are still sold by public auction today. Consider also that properties passed in at auction should not be viewed as failures; auction clearance rates are not necessarily accurate reflections of sales success. This is because the auction process does not stop when the hammer comes down – even when a property is passed-in, it will usually have generated enough interest throughout its campaign to attract offers afterwards.
Again, the auction process highlights current market value and buyers and sellers can come to an agreement in a faster period of time than through a private sale. The deadline of a four-week auction campaign tends to force buyers into make a decision in a tighter timeframe than a private sale situation: an auction creates an unconditional sale where there is no cooling-off period applicable and no terms and/or special conditions can be negotiated. You are also likely to sell your property faster through the auction process, as property sold this way typically has fewer ‘days on market’ than other private treaty methods of sale.
Downsides of selling via auction
In general, auctions have a more expensive advertising campaign than private sales, with a $5,000 to $10,000 average minimum budget. If the property does not sell, the vendor is still responsible for paying these costs from their own pocket. Agents can also pressure vendors to dramatically reduce their reserve price during the high-pressure environment of an auction: the vendor may or not be pleased with their decision in a more ‘rational’ moment. The auction process may not suit private people, who are uncomfortable having their home publicised across the internet and other advertising media, or hosting public ‘open for inspections’ that can also raise security as well as privacy issues.
Pros for buying via auction
Auction clearance rates are generally still lower in all capital cities compared with a year ago – which means there is now a greater opportunity to negotiate after auction below the vendor’s reserve price. The continuing uncertainties in the global and local economy have also dampened demand for property. This means fewer bidders (or competition) at auctions. Vendors’ prices have typically had to be lowered. This means that overpriced properties will linger and the longer the property is on the market, the more advertising expenses the seller will incur, not to mention an increased pressure to reduce the price.
In general, auctions have a more expensive advertising campaign than private sales, with a $5,000 to $10,000 average minimum budget. If the property does not sell, the vendor is still responsible for paying these costs from their own pocket. Agents can also pressure vendors to dramatically reduce their reserve price during the high-pressure environment of an auction: the vendor may or not be pleased with their decision in a more ‘rational’ moment. The auction process may not suit private people, who are uncomfortable having their home publicised across the internet and other advertising media, or hosting public ‘open for inspections’ that can also raise security as well as privacy issues.
Pros for buying via auction
Auction clearance rates are generally still lower in all capital cities compared with a year ago – which means there is now a greater opportunity to negotiate after auction below the vendor’s reserve price. The continuing uncertainties in the global and local economy have also dampened demand for property. This means fewer bidders (or competition) at auctions. Vendors’ prices have typically had to be lowered. This means that overpriced properties will linger and the longer the property is on the market, the more advertising expenses the seller will incur, not to mention an increased pressure to reduce the price.
Cons for buying via auction
As the market recovers, good quality properties are in high demand. They can create intense competition and sell at auction for high prices – especially in well-located properties in blue chip, inner suburban areas of most capital cities. Buyers can waste money commissioning building reports and having contracts reviewed professionally and then find the property sells well above their budget anyway. Vendor bids are unlimited in a number of states so that the auctioneer can push the price up towards the vendor’s reserve.
As the market recovers, good quality properties are in high demand. They can create intense competition and sell at auction for high prices – especially in well-located properties in blue chip, inner suburban areas of most capital cities. Buyers can waste money commissioning building reports and having contracts reviewed professionally and then find the property sells well above their budget anyway. Vendor bids are unlimited in a number of states so that the auctioneer can push the price up towards the vendor’s reserve.
Source: RPData
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