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Different methods of selling real estate

When selling your property, there are three main real estate selling strategies that your real estate agent will recommend. The following factors will come into consideration when choosing which method is best for you:

  • The kind of property that you own
  • Where the property is located
  • The Real Estate Agent that you choose
  • The current real estate market conditions in your area
  • The timeframe in which you wish to sell your property
  • Your personal beliefs
Collectively, these factors can all influence the potential sale price of your property

What are my options?

There are three main strategies which are as follows:
1. Auction
2.Tender (Expressions of Interest)
3.Private sale

Sale by Auction

In Australia, auctions are becoming increasingly popular. They are a very effective way to sell your home, as the buying community knows you are committed to making an immediate sale. Almost all property types can and are being sold via auction and auction houses. The old belief that auctions are for sellers in desperate need of a sale has long since passed.
The main component of an auction is that there is a time limit on selling negotiations. This can create more impetus and urgency from prospective buyers if there is a good chance the property is in high demand, which may be a great means of driving up the price. However, the opposite is also true if there are only a few people interested in the home. Sellers are also free to consider incoming offers before the auction takes place (with the exception of some mortgagee & deceased estate auctions).

How does an auction work?

  • The auction is conducted by an auctioneer either directly hired by the vendor, or by their chosen real estate agency.
  • The home is advertised at a specific place (usually at the residence in question) with the date and time of the auction displayed.
  • Potential buyers (bidders) compete against each other, hearing their competitor’s offer and countering with a higher bid of their own.
  • The house is then sold to the highest bidder.

This is provided the reserve price has been exceeded or reached (the price that the vendor has specified as being the minimum they will accept), or when 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 any further offers.

Advantages of selling by auction

  • In an auction scenario, it’s harder for the buying public to determine true market value because it’s difficult to compare other properties when they are not fully aware of the vendor’s sale price expectations
  • People bidding are buying with terms and conditions determined by the vendor.
  • Vendors are protected by the reserve price. They set the reserve together with the real estate agent after assessing the most probably bidding strength of the potential purchasers. This would be helped by information collated during the open houses.
  • The vendor controls how much is spent on the marketing plan by choosing to what extent the auction is to be advertised.
  • If the property doesn’t sell at the auction, the vendor is commonly put in direct contact with the most likely buyer to enter into further negotiations
  • The property is usually exclusively held by one real estate agent/auction house for a fixed period of time (normally 4-6 weeks). Marketing is usually intense over this short period of time, with either no price or a possible price range advertised.
  • An early sale can occur when a buyer feels ‘pushed’ to make an offer to buy the home before the auction day.
  • The contract upon sale is usually deemed as ‘unconditional’, meaning the sale will conclude on settlement day, rather than waiting for the buyer to receiving finance or carry out further building inspections.
  • Homes with unique features often do well at auctions, as they may attract more competition between bidders.
  • If more than one person wants to buy the property (creating a situation of multiple bidders), the competitive nature of an auction can cause people to bid higher than they originally wanted to spend. This can result in large profits for the vendor.

Disadvantages of selling by auction

  • Sometimes, properties are “passed in” on auction day, despite the owner still intending to sell in the coming weeks. This can upset some buyers.
  • Bidding can be a fickle process and if for whatever reason, it begins with low bids, this can send an incorrect message of the true value of the home.
  • Some potential buyers don’t like the competitive nature and immediacy of the auction process and won’t even bid.
  • 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 intense, which can be expensive for the vendor.
  • If you are in a hurry to sell, an auction offers the best chance of selling by a specific date, but there is no guarantee the home will sell or that you will receive the price you desire.
  • Auctions don’t always necessarily offer you the best sale price, as the winning person only needs to bid marginally higher than their competitors. You will never be sure that they offered the maximum amount they were willing to pay.
  • Most real estate agent contracts for an auction provide the agency with sole selling rights up until the auction, and then for a period of time afterwards. This then locks the vendor in with one agency for a defined period of time. In the event your property does get ‘passed in’, it’s a good idea to prepare for this by only giving the agency a specific period of time to retain exclusive selling rights after the auction (eg. one month).
Next month: part 2 covers selling your property by tender.

The Practice Financial Solutions holds an Australian Credit Licence (ACL # 388041) and is governed by ASIC.  We are accredited with over 30 lenders which means we’re unbiased – so we find the loan that’s right for you. Contact us on (03) 8888 4000 or loanupdates@thepractice.com.au.

Written by:

Ian Smith