Deciding to put your house on the market is a huge decision and ultimately everybody wants to receive the highest price for their property. The highly debated question though is does having an auction impact on sale price? Or what are the benefits of having an auction in comparison to a private sale?
Firstly, what is involved in an auction?
When putting your property up for auction it is important to consider creating a large marketing campaign to gain as much exposure as possible. You will also need to select a date for the auction allowing several open for inspections prior. The terms and conditions of sale must also be predetermined and contracts can be given out to prospective buyers before the auction. Most importantly, you will need to discuss with your real estate agent your reserve price and the lowest bid that you will accept for sale. On the day of auction if the bids reach your reserve price your property will be officially on the market and will be sold to the highest bidder. If however it doesn’t reach your reserve you will be consulted and if you agree to the lower price it will sell, if not further negotiations will be made between the real estate and the highest bidder.
So, what are the benefits of selling at auction?
Sense of urgency
There is a great sense of urgency because buyers are pushed to make a decision much faster than compared to a private sale. This is because there is a clear end date in sight and if they don’t make up their minds in time they will miss out on the sale. So, an auction attracts buyers who have a genuine, strong desire and are committed to purchasing the property. Fortunately you don’t have to deal with buyers who are uncertain and keep delaying the sale.
Rate of sale
It is estimated that properties sell 30% faster if the house goes up for auction compared to private sale. A private sale can be drawn out for months due to negotiations going backwards and forwards between the buyer, seller and real estate agent. On the other hand, an auction is restricted to a time frame and as a result it sells a lot faster. As the seller you will know the exact date when it will be sold and don’t have to deal with an extended, drawn out process that can occur with private sale. Nor do you have to put up with numerous and never ending open for inspections.
Competition amongst buyers
An auction can be highly competitive if there are multiple buyers interested in buying the property. The competitive bidding can cause the price to exceed the expected value of the property as people tend to bid higher than they originally expected to spend due to the high pace atmosphere of the auction.
Protection with Reserve Price
As the seller you can predetermine a reserve price, which means if the property doesn’t reach a certain amount then it will not be on the market for sale. Having a reserve price gives you protection that the house won’t sell until it reaches the amount of money you would like. If it doesn’t reach the reserve price the real estate then consults the highest bidder and attempts to negotiate a price both parties are happy with.
Assuming the reserve price is reached there is no uncertainty, the property will definitely be sold. This is unlike a private sale where the bidder can withdraw at any time. At an auction once they make a bid they are committed to purchasing the property.
Terms and conditions
The vendor creates specific terms and conditions based on what they want to happen in regards to settlement. The buyers must agree to these conditions.
With all of these benefits in mind you must also weigh up some of the limitations of an auction.
There will be additional costs involved due to hiring an auctioneer. You may also spend more money on the marketing campaign as usually you have a shorter period of time of exposure compared to private sale because an auction has a specific date.
Potential buyers may not like the environment of the auction such as the immediacy of the process and the competitive nature. This may deter them from placing a bid on the property.
Potential not to reach reserve price
Bidding can often be quite slow and might not reach the reserve price the seller has set. This can lead to the property passing in. This then means the seller has to consider selling the property for less than anticipated or has to extend the marketing campaign.
If you are still unsure whether or not to put your property up for auction the best thing you can do is ask for some advice from the people who know the property market best. We are happy to answer any questions and give you recommendations on whether your property is better suited to auction or private sale.