Selling via auction vs private treaty

What is a private treaty sale?

A private treaty sale is when you set the sale price and the real estate agent negotiates with interested buyers to achieve the best possible sale price.

For instance, you list your property for sale at $699,000 and your real estate agent tries to secure a sale contract for as close to that price (or higher) as they can.

Private treaty vs public auction

With private treaty or auction sales there is room for negotiation, and multiple parties can make offers.

The fundamental difference between a private treaty and an auction is that a private treaty sale has an asking price. Any potential buyer can contact the real estate agent and make an offer and enter into negotiations.

An auction is public and in some ways more transparent. Prospective buyers bid on the property at a specified location and time. The highest bidder purchases the property, as long as the bid matches or exceeds the reserve price.

How auctions work

You list your property for auction and set a reserve of $700,000. Several bidders make bids from $600,000 upwards, but the bidding stops at $680,000. This is lower than your reserve, so the property doesn't sell, and your agent negotiates with the highest bidder to encourage them to increase their price.

Or, several bidders make bids and the auction reaches $740,000. The property is sold, as the price exceeds your reserve.

There are strict rules for conducting auctions, which vary by state.

How to sell a house in 10 simple steps

Pros and cons of selling via private treaty sale

Tips for a successful private treaty sale

1. Set the best price. This is a careful balancing act that requires considerable thought. A price too low may lead to a disappointing sales result, and a price too high may deter interested buyers.
2. Create interest in the property. If you want to speed up the sale process and generate interest in the property, you may want to consider investing in marketing and being flexible about inspection times.
3. Choose a good agent. In a private treaty sale, you’ll be working closely with a real estate agent, so it’s worth researching different agencies to understand their fees and sales style.

Pros and cons of selling at auction

Tips for a successful public auction

1. Setting the reserve. You need to carefully determine the reserve price, the lowest offer that you're willing to accept, prior to the auction. This is important because you don’t want to change your mind “in the heat of the moment” in a competitive auction atmosphere.
2. Contracts. Ensure that you have the necessary paperwork and contract prepared in advance specifying the details of the transaction and transfer of ownership. For example, whether or not it is an unconditional sale and how much of a deposit you require from the highest bidder.
3. Choosing an auctioneer. An auctioneer can play a fundamental role in the outcome of the auction, so it’s important that you research and compare several auctioneers in the lead up to auction day. Ask about their strategies, their knowledge of the local property market and their experience within the industry.
4. Sticking to the budget. A general budget for a property sale by auction is around 0.5–1% of the expected sale price, so ensure that you set out your marketing and agent fees in advance to make sure that you stay on track.

Which is the right option for you?

Expert insight

"While buyers in Melbourne and Sydney tend to be familiar with auctions… those in markets like Brisbane, Adelaide and regional areas in the past haven't been traditional auction markets. However you decide to sell your property, visit open homes for private properties and attend auctions in the neighbourhood to get an idea of how much interest there is in the area. You'll be better prepared and less surprised on auction day."

Arjun Paliwal

InvestorKit founder

Your real estate agent can help you decide which sale method is the most appropriate for you based on location, property type, local market conditions, time frame and strategy.

A lot depends on:

• Location. Auctions are very popular in Sydney and Melbourne, for example.
• Property type. The type of property helps determine which sale method is suitable. Sellers of large houses may choose an auction to maximise their sales price. If you're selling a fairly standard apartment it might be simpler to set a price and wait for offers.
• Market conditions. Auction clearance rates (ACR) are a good indicator of buyer sentiment within a market. Ask your real estate agents for the latest ACR stats in your area. Above 70% is an indication of a strong auction market.
• Time frame. If you need to sell in a hurry a private treaty might be faster if you set a good price. Or if you have more time you could just set a higher price and see if your place still sells. An auction is more work, but it does give you a firm deadline to sell. A lot depends on how realistic your listing price or auction reserve is.

The importance of strategy

As a strategic seller, you should try to understand the buyer's way of thinking when marketing the property.

When a property is sold through private treaty, interested buyers will automatically think about how they can negotiate and lower the asking price.

On the other hand, in an auction, the agent will normally provide a price guide. As auctions are emotionally charged events, buyers are normally prepared to bid higher to secure the sale.

Frequently asked questions

• Is auction or private treaty better?

  Whether auction or private treaty is better depends on the property's market conditions and the seller's goals. Auctions are ideal in hot markets where competition can push prices higher, while private treaty allows for more negotiation and time to secure the best price in a slower market. Each method has its pros and cons, so it's important to consider your specific circumstances.

• Why do real estate agents prefer auctions?

  Real estate agents may prefer auctions because they create a sense of urgency among buyers, often leading to quicker sales. Auctions also provide a clear timeline for the sale process and eliminate lengthy negotiations. For agents, this can mean a faster commission and a more straightforward sales process.

• What are the benefits of auction sale?

  The benefits of auction sales include creating a competitive bidding environment, which can push the sale price higher, achieving a quicker sale, and providing a transparent process. Auctions also have a set date, which can attract serious buyers. However, the outcome depends on market conditions and buyer interest on the day.

Written by

Richard Whitten

Senior Money Editor

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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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