Different ways to buy a house
If you’re looking for the best way to buy a house for the first time, it’s best to consider all your options. Learn more about the different methods for buying a home below:
Private treaty or private sale
This is the most common way to buy a house. It involves a seller putting their home up for sale at a set price. As a buyer, you’ll know how much the property is being sold for and how long it’s been on the market.
To purchase a property through a private treaty, you’ll have to submit an offer to the owner through your real estate agent. With a private treaty, you can negotiate the price with the seller. This could include adding conditions and clauses that must be met before the house sale can be finalised.
When the seller accepts your offer, you enter a cooling off period wherein the buyer can cancel or back out of the sale without penalties. The exact timeframe of the cooling off period depends on the state where you’re buying the property.
Pros and cons of buying a home through a private treaty
Pros:
- There’s a cooling off period. This gives you the chance to consider the purchase and whether it’s the right choice.
- It’s easier to get a fair market price. Unlike the other two homebuying methods, private sale properties list down the sale price at the onset.
- There’s less risk of overpaying. Even if there’s competition amongst other buyers, it’s unlikely for the price to go far beyond the established sale price unlike at auctions or expression of interest purchases.
Cons:
- The home buying process is a long one. Buying through a private treaty typically involves getting home finance, doing home inspections, reviewing the sale contracts, negotiating with the seller, and more. The whole process from start to finish could take weeks or even months.
- The seller could back out. It doesn’t happen often but there’s still a possibility that the seller backs out of the deal before the contract signing and sells the property to another buyer.
Auction
You can get a great deal on your home when you buy at an auction. This is one of the more popular alternative ways to buy a house.
When buying a home at an auction, it’s best to study the process carefully. Before you can bid on a home, you must register with an auctioneer hired by the seller or their real estate agent.
As a buyer, you’ll compete with other bidders with the highest bidder getting the property for their bid price. If your bid is successful, you must pay a deposit of around 5% to 10% of the purchase price immediately or at a later date set by the seller.
Because auctions typically have public bidding, it’s easy to see how much everyone else is willing to pay for the property. Compared to a private sale, this homebuying method takes a bit more work on the buyer’s part.
Pros and cons of buying a home at an auction
Pros:
- You can buy a home quickly. You don’t have to wait weeks or months to successfully purchase a home. All you need to do is offer the winning bid and put down the deposit.
- You know how much everyone is bidding. You can see immediately if a home is out of your price range by how much others are bidding on it.
Cons:
- Homes at auctions are sold in their current condition. Buyers need to inspect the homes carefully before registering for auction and bidding.
- Auctions don’t offer buyers a cooling off period. You need to be sure about buying that particular home as you will be subject to penalties if you back out of the sale.
- You need to have your deposit ready. You typically have to put down your deposit at the time of sale. This means you have to get your home financing ready by the time of the auction.
Expression of interest
This method of buying is usually used to purchase premium or luxury properties. Potential buyers are invited to send a formal expression of interest or written offers to the seller’s real estate agent. There is a bidding process similar to an auction, but for this house purchase method, the bidding is private. Potential buyers won’t know how much others are offering to purchase the property.
The bids must include a contract of sale that includes the terms of the offer, finance conditions, proposed settlement, and the like. After receiving all the offers, the seller can either accept a bid, decline all bids, or contact the highest bidder for further negotiations.
Pros and cons of buying a home through expression of interest
Pros:
- There’s less pressure. Unlike a public auction, you can take your time to compose an expression of interest privately without going through a bidding war.
- You can add conditions to your offer. Similar to buying through a private treaty, you can add terms and conditions to your expression of interest that sellers must meet for the sale to go through.
- You can arrange financing. There is a set timeline when buying through an expression of interest so you can plan and apply for a home loan.
Cons:
- You don’t know how much other buyers are bidding. Because all bids are private, it will be difficult to compare prices. As a result, you may end up overbidding on a property.
- You could miss out due to bidding too little. It’s not like an auction where you can try and outbid others in real-time.
- Closing could take a while. If you want to buy a home quickly, an expression of interest may not be the way to go. This method usually has a four- to six-week waiting period.
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