Auction vs Private Sale – Which is Best?
We commonly receive feedback about how people are confused about the private sale process and others that dislike going to auctions – amongst the reasons why is that some feel intimidated or exposed, others are unsure of the process, don’t understand who is bidding or what price range is realistic. All valid reasons and sentiments that can be eased with a little more information and knowledge.
The Auction Facts:
Buying at auction is the most transparent method to buying real estate. Laws prohibit false or dummy bidding so these activities are a thing of the past; no longer will the tree standing next to the man in the hat make an extra $10k bid against you (just some of the stories we have heard). When attending an auction, there can certainly be plenty of people at the event – neighbours, friends or family members of people who have shown interest in the property and have arrived for moral support. Generally, there will be just 2-5 real bidders trying to out-bid each other and buy the property. This is what makes the true market value - two or more independent bidders putting their hand up. Each bidder generally has a price limit and it all comes down to who has the highest limit!
To ensure complete comfort, it is wise to research the property’s likely market value range prior to the auction (information on comparable sales of very similar properties sold in the area is most useful) and set your personal limit as to how much you are able and prepared to spend to secure the property. And ensure you are pre-approved for finance – there is no cooling off period or ’subject to finance’ clause applicable with an Auction sale, so if your bid is successful, you are committed!! You then don’t need the stress wondering whether you or not can afford to settle on the property or organise your home loan finance in time.
Private Sale Facts:
Many agents advertise private sale property with a price range. This style of advertising mostly confuses potential buyers. Is the home for sale at $560k or $600k? The price range advertising method is supposed to give people an idea of where they (selling agents) believe the final price will fall within and must be within 10% of what the vendors actual ‘ideal’ or ‘reserve price’ will be, However, this mainly applies for an Auction sale. When an agent advertises a private sale, they should ethically advertise what the asking price is, not a range. Unfortunately, the rules around this area of advertising are still quite vague and not diligently enforced so one needs to be aware of the process. If an agent is advertising a property for $560,000, then a buyer should be able to buy it for $560,000. Often, the agent will sign up the buyer at the advertised price, then call them later that night and say they have had a better offer and ask you to increase your offer if you want to buy the property!
The question here is simply, do they really have a better offer?
The only time you know if your offer has been accepted, is when the agent calls you and says the vendor has agreed to sell to you, at your price. However, an agent may accept your offer in the first instance then advise they need to inform other people who have showed interest that the property is about to be sold, allowing them to counter-offer. In this scenario, you would be likely advised in 24 hours as to whether you have actually been successful in buying the property. Essentially, we now have a Dutch Auction, and as a buyer, you have no transparency other than the selling agents word that there may be another better offer on the table. We know many buyers that have missed out by as little as $1000 with this process!
This is where the transparency of buying at an auction sale is of benefit, as you can actually see who is bidding against you, and you can then make up your own mind if you want to make a further bid, or simply walk away.
Part of our service offering is to help our clients be ‘buyer-ready’ for auctions. To discuss further, please call me on 0438 041 111 for information on how we can help you get around this tricky and uncomfortable buying process. For us it’s easy, but then we do this all the time.
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
Peter Vinci - 0438 041 111