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29 Nov 2023
When it comes to buying real estate, there are two main options available to potential buyers: auction or private treaty. While both methods have their own pros and cons, it can be important for buyers to understand the differences between the two in order to make an informed decision.
Here's a comparison of auction versus private treaty, and how to work out which option you'd prefer.
Private treaty is a more traditional method of buying real estate, where the seller sets the sale price and the real estate agent negotiates with interested buyers to achieve the best possible price. For example, if a property is listed for sale at $599,000, the agent will try to secure a sale contract close to that price or as high as they can.
This method allows for pre-sale inspections, negotiations (regarding price and terms), and gives the buyer the opportunity to make an informed decision about the property.
Private treaties tend to be a slower, and less emotional process than buying at auction as there is usually no deadline for the sale to be completed.
A property auction is a fast-paced process where the property is sold to the highest bidder. The speed of the process makes it an attractive option for those who want to acquire a property quickly and without delay. This can be especially appealing to buyers who are looking to avoid lengthy negotiations or the risk of the sale falling through.
The auction process is typically less complicated than private treaty and the sale is usually completed on the day of the auction. When the hammer falls, there is no option for a cooling-off period. If you are the successful bidder, you will have to settle the contract even if:
The nature of auctions also means that the price is gauged by the crowd, rather than dictated by a seller.
If you are considering buying at auction, it can be beneficial to see some auctions yourself to learn the ropes.
Here are some tips to keep in mind to prepare you for buying a property at auction:
Start by researching the real estate market in the area where the property is located. Look at the current market trends, recent sales prices, and the demand for properties in that area. It’s no guarantee, but doing some of your own due-diligence can help you avoid lining up for a home that’s beyond your budget.
Understand the rules and regulations of the auction, including:
Before the auction, it’s advisable to have a professional inspector assess the property - especially if you’re seriously considering purchasing the home. This will give you a better understanding of its condition and any potential repairs that may be required.
Determine how much you are willing to spend and stick to it - you want to avoid overpaying. Make sure to factor in the cost of repairs, renovations, and any other expenses that may arise after the purchase.
If you plan to finance your purchase with a mortgage, it’s important to get pre-approved before the auction. This will give you a better idea of how much you can afford to spend and will also help you to bid with confidence.
Attend a few other property auctions before the one you plan to bid on. This will give you a better understanding of the bidding process and the type of properties that are typically sold at auctions.
It will also help you identify and understand how auctioneers work and the tricks they use to play in bidder emotions.
Before auction day, ensure the contract of sale is reviewed by your solicitor or conveyancer. It gives you a chance to ensure everything is in order and whether there are any conditions that may not be in your favour.
If you’re the successful bidder at an auction, you’ll have to sign the sale contract and typically provide a 10% deposit on the spot. Your solicitor or conveyancer will then carry out the research needed on the property and arrange the settlement date.
If you’re going to buy through private treaty, consider the following:
If you’re in need of conditional approval for a low rate home loan, so you can make an offer with confidence, have a chat with our friendly lending specialists to get the ball rolling.
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