Home Auctions vs Private Treaty Sales: The Pros and Cons

When it comes to selling your property, which is better: auction or private treaty? Canstar explores the pros and cons of the two options.

There are three main styles of property sales in New Zealand:

  • Private treaty (or private sale): interested parties make an offer and negotiate a price and purchase conditions with the seller
  • Auction: interested parties bid against each other 
  • Tender and expressions of interest – offers are submitted individually. Prospective buyers don’t know the other offers, and the home goes to the highest price. 

Of the three sales methods, the first two are the most common, with private treaties the most popular. Auctions were used in 20% of all sales across the country in March 2020, with 1404 properties selling under the hammer. This was up from the same time last year, and the highest percentage of auctions in 40 months. However in some regions the percentage of sales by auction are much higher. 

In Gisborne in March, 48% of properties sold in the region went under the hammer, and in Auckland the number was 40% – the highest percentage of auctions for Auckland in 40 months.

As the country went into lockdown due to COVID-19, auctions vanished overnight, although some agents did manage to continue via the internet and on Zoom calls. But as we emerge from our enforced hibernation and the housing market picks up again, auctions will once again become commonplace.

If you’ve never bought or sold a home, you may want to know how the private treaty process works and how it differs from the main alternative (an auction). You might have questions about the process and, ultimately, whether buying or selling by private treaty is the right option for you. If so, read on…

What is a private treaty sale?

A private treaty sale, or private sale, is when a property is advertised as being on the market, and prospective buyers make their offers directly to either the seller or their agent. Essentially, this method of selling gives both the seller and buyer the most flexibility to negotiate price and purchase conditions. The property will be listed with a price or price range, and no set deadline on the expiry of the sale.

A real estate agent may potentially help to facilitate a sale or purchase in several ways, such as: 

  • Giving the seller an idea of current market conditions
  • Advising the seller on when to sell their property, and at what price 
  • Facilitating any marketing/advertising of the property, such as dressing the property for sale
  • Letting the seller know when an offer has been made, negotiating a price, then letting the prospective buyer know if the offer has been accepted

That being said, a private treaty sale can potentially be made without the help of an agent. This can be a trickier process if you haven’t sold a home before or you don’t have extensive property and negotiating experience, so just make sure you’re well aware of the process before you commit to it. You will need your lawyer to assist you with the legalities.

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Pros of a private sale

  • No guessing-games. A fixed price can make it easier for buyers as they don’t have to guess your desired sale price.
  • Time. Private sales can work well as they provide you with more time to consider offers from prospective buyers.
  • Flexibility. The price can be adjusted throughout the marketing stage, and sellers can also take their time in receiving and selecting offers. 
  • Less intimidating than an auction. The pressure and public nature of an auction doesn’t appeal to everyone, be it the buyer or seller.
  • Costs. A private sale can be less expensive than holding an auction, as you don’t have to pay for an auctioneer, or if you’re managing the sale yourself privately, you’ll save on a real estate agent’s commission fees. 
  • Privacy. As the name suggests, you can keep your business to yourself.

Cons of a private sale 

  • Sale time. With no exact end date, and potentially multiple negotiations taking place, the entire sale process can sometimes be more drawn out.
  • Cooling-off period. The majority of private sales are subject to a cooling-off period, which means the buyer could potentially change their mind during this time.
  • Lack of urgency. Nothing brings urgency to buying a house like an auction does for buyers. Buyers compete against each other to drive prices up in an auction. During negotiations for a private sale, often buyers are aiming to negotiate prices down. No deadline can also mean interested buyers are not compelled to act as quickly as they would at an auction.
  • Risk of misjudging the worth of your property. This can potentially be mitigated by stating a minimum sale price.

What is an auction?

Property sales by auction are common in New Zealand. Potential buyers register their interest before the auction day and then publicly gather to bid on the property. When the auctioneer’s hammer falls, the highest bidder is committed to sign a contract on the day.

Most sellers will have set a reserve price, which is the lowest price they’re willing to accept for the property. If no bids are made at or over the reserve price, the property may be passed in. Interested buyers may have an opportunity to negotiate a sale with the owner if this happens.

Properties sold by auction have no cooling-off period unlike private treaty sales, and you can’t  negotiate the conditions of sale.

Pros of a sale by auction

  • Potentially more buyers in the room. Auctions attract a lot of potential buyers as people aren’t put off by an asking price.
  • Urgency. The auction date creates a sense of urgency that stops buyers from delaying their decision. There’s also increased competition from other buyers.
  • You’re protected by a reserve price. This means your house won’t sell unless the bidding reaches a pre-agreed amount.
  • Includes an unconditional contract for sale (with a set settlement date).

Cons of a sale by auction

  • Costs. You can incur additional costs like an auctioneer or more expensive marketing campaign. You’re responsible for covering these costs even if you don’t make a sale on your property.
  • Can rule out potential buyers. Given that the highest bidder must sign a contract on the day, people who aren’t able to secure finance before the auction day may be forced to step out. This can potentially reduce the number of bidders come auction day and limit the sale price.

gavel and key

How do I know what the right option is for me?

There’s plenty to consider, and it’s worth talking to a local real estate agent to get a feel for the area you’re in and what’s currently for sale. You’ll want to consider the type of property you have (for eg, is its value widely known due to surrounding similar properties? A private sale might be better here), market conditions, and your time frame. You might be better to go to auction if you want to sell quickly and there’s not many comparable property sales in the market. A private treaty sale might work better for you if there’s no real urgency in selling and you’d like the privacy the method offers.

Home loans for a private sale

If you’re looking to buy a home via private treaty, or any other method, it’s best to plan ahead to ensure your finances are organised. Knowing how much you can afford before you start house hunting will prevent a lot of disappointment. Also, if there are multiple similar offers for a home, the vendors will always look more favourably on those that already have their finances in place, as this can help prevent a deal falling through. 

To aid with your house-hunting process, Canstar has a range of tools, ratings and comparison tables to help you crunch the numbers on your finances and choose the best mortgage provider.

For our Home Loan Borrowing Power Calculator click here our Five-Star home loan awards click here, or to compare market rates hit the button below.

Compare home loan rates for free with Canstar!

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