Private Treaty Sale vs Auction: What to Choose?

May 7th 2019 by Paola Strazzer

Selling Your Home Selling Guide

Cover: Article > Private treaty sale vs auction: What to choose?

The thought of acquiring and selling a home is one that comes with a lot of pros and cons in the modern day mortgage economy. Selling a home is the toughest decision one has to make as it involves determining the most appropriate method of selling your home to maximize your profits. A lot of questions rise up; we often wonder whether we are better of selling off our property via auction or private treaty?

This causes a big dilemma to most individuals as they fail to get viable information that can toe the line between private treaties and public actions. It is true that each of the two home selling methods has its own pros and cons. This article goes further to highlight all the drawbacks of each of the two methods, let us delve and learn more.

What is a Private Treaty Sale? What is an Auction?

It is important that we understand the meaning of the two terms, private treaty sale, on one hand, occurs when a property owner on his or her own terms sets the sale price and allows a real estate agent to negotiate with all the interested parties to get the best value price for the property, on the other hand, public auctions involve a sale that allows bidders to bid on a property in a specific place and timeline. This goes until the highest bidder is identified, the property is then purchased by that bidder. It always involves paying a 10% deposit of the property price.

Therefore, the main difference between a public auction and private treaty is the fact that the former-public auction has a deposit which serves as an asking price while the latter has no such asking price on the property.

Pros and Cons of Public Auctions and Private Treaties.

Private Treaties

Private treaties have many pros and cons, here are some of them expounded on well to get you all the information that you need. Private treaties have a lot of flexibility for negotiation-this is the best advantage associated with this home selling method. It allows both the homeowner and property buyer to sign a contract even before all the conditions are met for example property inspection or any form of financial approval.

A house for sale

Pros of Private Treaties

Private treaties have a lot of time Flexibility-Private treaties, unlike public auctions, have a long time frame for a lot of property inspection as the home is listed on sale until the owner puts the sale on hold. This means negotiations can go on as long as the involved parties agree.

Private treaties are cost saving as they ensure that a property owner cuts down on the cost they would have incurred in advertising and other promotional expenses that are common in the public auction campaign.

Cons of Private Treaties

Despite all these positivities, private treaties have cons, drawbacks, and setbacks, too as a property selling method. Some of the common cons include:

Private treaties take longer. This was an advantage but at this end, it’s a setback because this may make it harder for you to sell your property, it may take longer at times.

Private treaties have a lot of privacy. Private treaties offer a lot of privacy to individuals as it allows the property owner to discuss the price and other legalities away from the public sphere something that is common in public auctions.

Private treaties offer a lot of variant pricing. If the property value is not well calculated and stated, one may end up selling a property at a lower cost than the actual value on the market or a worse scenario could be that your house may sit unoccupied for months thus generating little or no interest.

Selling your home on a private treaty causes one a lot of trouble as you have to make your property available for inspection to each and every prospective buyer something that may cause you a lot of trouble and time wastage.

One other thing you have to consider is the change of mind. Most private treaties are subject to calling off from prospective buyers at any stage of the deal. This makes it hard for one to focus all his mind on one client.

Public Auctions

It is a good way of reaching out to a group of different potential buyers, however, before deciding haphazardly, one has to look at the following pros and cons associated with this form of property selling.

Pros of Public Auctions.

Public auctions often accrue higher prices. If at all your aim is to get huge profit margins from the sale of your property, then the best way to ensure this happens is to choose the public auction model of selling the property. This will ensure that the highest bidder gets to acquire the property and in return, you are able to get the real value of what you were looking for.

Public auctions are time-bound. We all want negotiations that do not last forever when it comes to buying and selling of property especially mortgages, who doesn’t? With this in mind, you may opt to go for the public auction form of selling as this allows you to ensure that the sale of your property is timely.

Public auctions offer property owners peace of mind. Public auctioning always gives the peace of mind you deserve when it comes to the valuation of your property. It allows only the highest bidder to get the property at the right price-your price is always protected. A reserve price is always set and you cannot sell the property unless the price is greater or equal to the set price.

No cooling off periods. The public auction allows one to get the best offers at a stipulated time and thus protects a seller from instances of failed negotiations as seen in private treaties. The time-bound factor makes this an emphatic point.

All in all, the following are the setbacks of public auctions as a property selling mode.

Cons of Public Auctions

Public auctions properties have higher Costs. There are a lot of fee payments that are carried out in public auctions even if the property is not sold. You have to ensure you curter for all the marketing budget, payment of the auctioneer and the real estate agents. This makes public auctioning a very expensive venture when it comes to choosing a means to sell your property. They generally cost the seller more than a private treaty.

Public auction rules out lots of buyers. Auctions are demanding and intimidating in nature, this causes most buyers and sellers to opt for private treaties. This public auctions may end up scaring a prospective buyer who in one way or the other is not able to pay the 10 percent auction fee.

Reverse sale scenario-what happens if a successful bid is not me? Your property highest bid that wasn’t met may be used to negotiate lower prices for your property hence causing you a lot of losses in the end.

Important Points to Note Before Settling on Either a Private Treaty or a Public Auction.

People doing an inspection

Having read all the pros and cons of these private treaties and public auctions, one may still ask, what is the best option for me? The answer is simple and clear, involve yourself in a meaningful conversation with your real estate agent to ensure you come up with the best method to use in selling off your property. However, you can use the following guidelines to determine what suits you most and what method to use in order to ensure that you get the best out of the whole selling exercise. It is important to consider:

Your Property Location-Where is it Located.

Your property location determines your potential buyers. An example could be if you are staying close to a major city or a central business district, this, therefore, calls for one to use public auction as opposed to private treaties as most of the prospective buyers are more used to this form than the private treaties. It is therefore important to identify your location and prospective buyers before choosing a mode of selling off your property.

The Type of your Property.

The type of property you are selling also helps you to choose the best mode of selling off your property. If you are selling a property that is known —one in a commission housing area whose price is well known, then private treaties may be the best option and vice versa.

Selling Conditions of your Property.

This is another important step that one can partake when it comes to identifying the best means to use in selling off their property. This selling conditions may range from auction clearance rates to the number of dates available before the sale of the property. In cases where the auction clearance rates are high, one may opt to go for private treaties so as to cut down on costs.

The Available Time Frame for Sale.

This is the urgency of selling off the product. It involves one choosing a mode that saves their time and meets his or her targets. If you have a short deadline period, a public auction may be the best mode for you because it has a deadline. If your sell is not time-bound, you can opt to go for a private treaty —which will involve negations at your own pace until you find the best match for the sale up.

Valuation of your Property.

This is also another very important factor that helps you to decide the mode of selling your property to use. In a case where the valuation of the property at hand is too high or difficult to get a public action becomes the best way of selling off the product but if the pricing of the property can be determined, a private treaty may serve as the best bet for the day.

A Chance to Compare Properties.

In other cases, one may be selling only one property which means, a prospective client cannot be able to compare such property to another, in such a case, a public auction is the best mode as the buyer will only get what is available and there are no comparisons involved. On the other hand, if a prospective client wants to compare the value, design, and layout of the property in question, a private treaty may suit him or her the best.

As a Seller What do You Need?

It is utterly important for you to understand the value of what you are offering out there to prospective buyers. You ought to understand the thinking of these buyers even before they knock on your door. It is important to ensure that you understand the following:

In a private treaty, prospective buyers or candidates are always thinking of a way of lowering down the actual cost of the property. On the other hand, in a public auction, the prospective buyer understands that for him or her to get hold of the property, they should always bid higher than the asking price in order to secure the property.

Any time you think of getting a house or any property via auction, it is important for you to understand the technicalities involved and to never get caught in the competitiveness that comes with this form of property selling. As a seller, it is of utmost importance for you to set your own price range. You have to ensure that you are aware of how much it costs to sell a property in your area or country so that you don’t incur losses but rather, you are able to maximize on your returns.

So since you know the advantages and disadvantages of each selling technique, how would you choose which one is the one for you? The two strategies for selling off property have been working adequately for sellers for a long time. Your land specialist will almost certainly offer you more guidance on which strategy is most appropriate for you and your property. Your agent will most likely advice you a public auction if the property is a high-end game- a unique property.

It is utterly important for you to understand the value of what you are offering out there to prospective buyers. This helps you decide much better the best option to use in the quest of getting the best returns out of your property. Both public auctions and private treaties have their strengths and weaknesses but that does not mean that one is better by a bigger margin.

Sellable takes the uncertainty and risk out of selling your property by giving you cash for your home as quickly as 7 days while still maximising the value of your property. We also take on all the usual headaches involved in selling your property: we’ll deal with the real estate agents, the “open for inspection” days, offers from potential buyers, the auction process (if applicable), and work with the lawyers and solicitors to ensure a speedy and efficient settlement process.

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