Selling your Home by Auction
In Australia, auction is an option for selling your home. It can be very effective method of selling as the buying community knows you’re committed to making an immediate sale. Any property type can be successfully sold using auction.
The big difference of an auction is that there’s a time limit on selling negotiations and an urgency from prospective buyers if the property is in high demand, resulting in a selling price that’s driven up by competition.
The auction is conducted by an auctioneer either directly hired by the vendor, or by their chosen real estate agency.
The home is advertised with the date and time of the auction displayed.
Potential buyers (bidders) compete against each other, by making increasingly high offers until only one buyer remains.
The house is then sold to that highest bidder. This is provided the reserve price (the price that the vendor has specified as being the minimum they will accept) has been exceeded or reached, or if the vendor concedes to a lower price than they originally hoped for.
If the home doesn’t reach the vendor’s reserve price, the property is ’passed in’ and the current highest bidder then has the right of first refusal to make any further offers.
It is important to note there are also more specific laws and requirements which vary from State to State and sellers and buyers need to be familiar with them. Here are some general pros and cons of selling by auction:
Advantages of selling by auction
- It’s harder for the buying public to determine true market value as it difficult to compare other properties not knowing the general price range, which in turn may see the property price driven upwards.
- People bidding are buying with terms and conditions determined by you as the vendor.
- You, as the vendor, are protected by the reserve price. You can determine the reserve in conjunction with your agent as a result of information collected during the open house inspections and other sales in the area.
- You can agree to the marketing plan in advance.
- If the property doesn’t sell at the auction, all is not lost, negotiations often take place after the event.
- The property is usually exclusively held by one real estate agent for a fixed period of time (normally four to six weeks). So the agent is actively marketing your property over this period of time.
- An offer can occur prior to auction day usually because the buyer may feel competition on auction day will be too fierce.
- The sale contract is usually deemed ’unconditional’, In other words, you have no right to make the contract subject to any further conditions, such as finance or building inspections.
- There is no cooling-off period. This means that the highest bidder will be required to go through with the purchase.
- It is a good option for houses that have unique features, as it can be difficult to determine an achievable price for the home.
- Contracts are signed and a deposit is paid immediately after the auction is completed.
- If more than one person wants to buy the property, the emotional and competitive nature of an auction can result in people to bidding higher than they originally planned. This can result in a successful price being achieved.
- In hot markets auctioned homes sell for hundreds of thousands more on average.
Disadvantages of selling by auction
- Sometimes, properties are “passed in” on auction day and, despite the owner still intending to sell over the coming weeks, some potential buyers can be turned off the property and move on.
- Bidding is a fickle process and if, the bidding is slow, this can send an incorrect message about the true value of the home.
- Some potential buyers don’t like the competitive and emotional nature of the auction process and prefer to have a more concrete idea of the price range and whether it is within their budget, so won’t come forward to show interest in an auction.
- There is no cooling off period, so the highest bidder will be required to go through with the purchase. This can be a turn off for auction shy buyers.
- Now that auctions are highly regulated, many states require that buyers must formally register. Some potential buyers may not like this process and will not sign up.
- Marketing and advertising campaigns for auctions can be quite expensive.
- If you’re in a hurry to sell, an auction offers the best chance of selling by a specific date, but there is no guarantee the property will sell as less than 50% of auctions are successful.
- Auctions don’t always achieve you the best sale price. Once the bidding stops the sale goes to the highest bidder, so you never really know if that bidder could have potentially paid more.
- Most real estate agent auction contracts provide the agency with sole selling rights until the auction and for a time after. It’s a good idea to leave your options open by only giving the agency a specific time frame to retain exclusive selling rights after the auction (one month, for example).
What are my other selling options?
Private Sale – Once a house has been listed for private sale, prospective buyers can make offers without competition from other purchasers. It’s then up to the seller to choose whether or not to accept each offer or enter into a negotiation process. Your real estate agent will help with negotiation. Most buyers and vendors are comfortable and knowledgeable about this type of sale.
Sale by Tender – Here, the seller will accept tenders from prospective buyers and consider these various offers at a pre-specified date. Vendors use the spirit of competition to their advantage by inviting secret offers from interested buyers. It allows you as the seller to offer a broad price range.
Choosing the right method of sale
As always, the best suited method of sale will depend on your property, your property location, current market conditions and the knowledge and skills of your real estate agent. So be prepared to discuss all options with a reputable real estate agent who is up-to-date with current selling conditions in your area.