DECISION #2: WHAT IS THE BEST SELLING PROCESS FOR ME?
There is no single right or wrong way to sell. The most usual method of sale is known as “private treaty”.
In a private treaty sale, the property is listed for sale, a buyer makes an offer, and the seller chooses whether or not to sell.
In most private treaty sales the seller engages an agent to list and promote their property, and to negotiate a sale contract with buyers. The seller sets the price (mostly in consultation with the agent), although many properties are listed without a price, known as “price by negotiation” (we’ll discuss pricing strategies in Chapter 4).
The property is advertised to attract buyers. Once a buyer indicates they would like to make an offer, the seller’s agent prepares a contract.
We’ll talk more about the negotiating and contracting stage later. Suffice to say here that the agent consults their client, the owner, about the offer made by the buyer. The owner may:
- Accept the offer
- Reject the offer
- Make a counter offer
The agent can go back and forth between buyer and seller a number of times before a final contract is either agreed, or one party walks away.
The second most common form of sale method used is the auction. Some people swear they will never consider an auction, but many sellers do very well from an auction process. Auction is popular in Sydney and Melbourne, but not as much in Queensland. Strangely, perhaps, in an age of online auctions through eBay, auctions are rarely used for property sales in the United States.
Auction is an exclusive agency arrangement where the property is put on the market without a price, and after a marketing campaign buyers are invited to gather and bid for the property. Auctions are considered the most effective means of achieving fair market value, and mortgage lenders accept an auction result as a market value outcome.
The absence of any price in the marketing has certain advantages and disadvantages. In terms of advantages, the negotiation that normally takes place in a private treaty between buyer and seller is avoided, potentially reducing the win/lose scenario of direct negotiations. Instead, at auctions, it is buyer against buyer. The seller sits on the sidelines, anxiously waiting to see if their reserve is exceeded.
You, as the seller, can specify a reserve price, which is the minimum price at which you are willing to sell. You don’t have to tell the agent what this reserve is until the auction. If the reserve is reached, the property is considered to be “on the market”. There’s always a chance the reserve might not be reached, and if this happens there is the opportunity for buyers to negotiate after the auction. The property can be sold before, during or after auction.
Bidding will depend on the interest in the property. In Queensland all bidders must register prior to the fall of the hammer. Bidding is a strategy in itself, and some bidders will have a range of tactics. Some will not bid until the property is announced as being “on the market”.
From a seller’s viewpoint, an auction contract is the cleanest possible, as it has no conditions such as being subject to finance, or building and pest inspection. Prior to auction, buyers can arrange their own building and pest inspection, and/or the seller can arrange a building inspection report to be available to buyers.
From a buyer’s viewpoint, an auction is an opportunity to purchase at the lowest fair market price. In a depressed market, auction sales will more often result in properties being “passed in” and not selling than at times when the market is at its peak.
Because auctions have a defined period of marketing leading up to auction day, there is often more spent on advertising than for a private treaty sale. But this doesn’t have to be the case. The minimum difference in cost is the auctioneer’s fee.
Importantly, selling by auction is a process, not an event. Auction is about designing and implementing a marketing campaign to achieve the maximum buyer competition at the auction. Auctions are about drawing attention to your property. If you want your house marketed with a minimum of fuss, auction may not be for you.
Unlike with a price by negotiation, where the agent may give guidance on pricing, in Queensland agents are not permitted to give any guidance to a property going to auction. (There is disagreement among agents as to whether they should be permitted to give guidance for auctions. Allowing price guides results in unethical practices such as “baiting”, where some agents use a low price guide to encourage people to turn up to the auction. This is irritating to buyers and gives the industry a bad reputation.)
Auctions are not for all properties. The average property with average appeal is possibly best sold through private treaty, particularly if the market is not at its peak. Auctions work well:
- when the market is booming.
- when the property is in an area with higher than normal demand.
- for properties with a broad market appeal.
- for properties being sold as a result of divorce or death.
- for prestige, acreage, rural and high value properties with broad appeal, and possibly international interest
Tender (or Expression of Interest)
Tender, or Expression of Interest, is an exclusive agency arrangement, where buyers are asked to submit bids up until a cutoff date, at which time the bids are opened and considered by the seller. The seller is under no obligation to accept any bid. Bidders need to put forward their best and final offer. Tenders are generally used for unusual or high value properties, where the numbers of bidders may be low, and where there may need to be a degree of flexibility in the terms and conditions of the bids that is not possible with an auction. Tenders are more commonly used in commercial property.