In today’s property market, you might wonder whether it’s better to sell your property at an auction or a private sale. While your local real estate agent can tell you the best method, here’s everything you need to know about selling at auction.
(A great real estate agent will be able to tell you which method of sale is best suited to your property and location. If you’d like to compare real estate agents in your area, you can click here to use our free agent comparison service. Compare real estate agent commissions, marketing strategies, sales history and independent homeowner reviews.)
Selling property by auction
In Australia, auctions are becoming increasingly popular. They’re a very effective method of selling your home, as the buying community knows you’re committed to making an immediate sale. All property types can be sold via auctions and auction houses.
The main difference between an auction and a private sale is the time limit on selling negotiations. This creates urgency from prospective buyers if the property is in high demand, resulting in a selling price driven by the competition.
However, if only a few people are interested in the property, there’s less of a chance that the auction will take off, meaning a lower selling price. Either way, sellers are free to consider incoming offers before the auction (except for some mortgage and deceased estate auctions).
The pros and cons of selling by auction
Advantages of selling by auction
- In an auction scenario, the hidden price means it’s harder for the buying public to determine true market value. This is because it’s difficult to compare other properties when prospective buyers are unaware of your sale price expectations.
- The people bidding are buying under the terms and conditions determined by the vendor.
- As the vendor, the reserve price protects you. You have the opportunity to set the price alongside your real estate agent after assessing the bidding strength of potential purchasers. Information real estate agents collate during open house inspections also helps determine the reserve price.
- You get to control how much is spent on your property’s marketing campaign by choosing how widely you advertise the auction to the public.
- If the property doesn’t sell at auction, you’ll be put in direct contact with the most likely buyer and can enter further negotiations.
- The property is usually exclusively held by one real estate agent/auction house for a fixed period (normally four to six weeks). Marketing is intense over this short period, with either no price or a possible price range advertised.
- An early sale can occur when a buyer feels compelled to make an offer to buy the home before the auction day. In this instance, they’ll believe competition on auction day will be too fierce.
- The sale contract is usually deemed unconditional, meaning the sale will conclude on settlement day, a.k.a auction day. This is compared to a private sale when you typically have to wait for the buyer to receive finance or further inspect the building.
- Homes with unique features often do well at auctions as they attract more competition between bidders.
- If more than one person wants to buy the property, the competitive nature of an auction can cause people to bid higher than their original limit.
Disadvantages of selling by auction
- Sometimes, properties are passed in on auction day. Despite the owner still intending to sell over the coming weeks, this result can upset or eliminate some potential buyers.
- Bidding is a fickle process and if, for whatever reason, bidding is slow, this can send an incorrect message to bidders regarding the home’s true value.
- Some potential buyers are intimidated by the competitive nature and immediacy of the auction process and won’t even bid.
- Now that auctions are highly regulated, most states and territories require buyers to register formally. Some potential buyers may not like this process and will, therefore not sign up.
- Auction marketing and advertising campaigns can be quite expensive.
- If you’re in a hurry to sell, an auction offers the best chance of selling by a specific date. However, there’s no guarantee the property will sell or that you’ll 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’ll never be sure that they offered the maximum amount they were willing to pay.
- Most real estate agent auction contracts provide the agency with sole selling rights until the auction and then for some time afterwards. This then locks the vendor in with one agency for a defined period. If your property gets passed in, it’s a good idea to prepare for this by only giving the agency a specific period to retain exclusive selling rights after the auction (one month, for example).
A step-by-step guide to selling your house by auction
- First, you need to appoint a real estate agent to help you determine whether a property auction is the way to go. They can then recommend a good auctioneer who will deliver the results you want—a friendly competition between interested parties and the highest selling price possible.
- When your auction date is locked in place, it’s time to advertise. A good marketing campaign will begin between four to six weeks before the auction date to generate interest. It will also effectively target potential buyers, whether they’re avid social media users or prefer traditional print listings.
- Next, it’s time for open house inspections. Ensure your house is impeccably clean and inviting to encourage potential bidders to return on auction day.
- It’s auction day! Before the auction, your agent will confirm the final details with you, including the reserve price and what the auctioneer should do if you don’t meet this price. They might also discuss the number of interested parties who have signed up. Then it’s time to hand over the reins to the auctioneer in the hopes the property sells for a great price.
When the auction starts, potential buyers will compete against each other by making increasingly high offers until only one buyer remains. Then the property is successfully sold to the highest bidder. This is provided the winning bid equals or exceeds your reserve price or if you concede to a lower price. Then your agent will work with the highest bidder to sign a contract and pay the deposit. Keep reading to discover what happens if your property doesn’t sell at auction.
Related: 5 Ways to Prepare for Auction Day
The auctioneer’s role
Experienced auctioneers can make and break property auctions. Their role is to control the negotiation process and create a fun and lively atmosphere to encourage bidders to reach a higher price that exceeds expectations. The more bids, the more chances of a successful sale. They’re also skilled at resolving disputes and problems.
Auction rules dictate that auctioneers must announce auction terms and conditions before the auction commences. During the auction process, the auctioneer must record all bids (usually with an assistant’s help). They cannot accept any bids once the auction is over or from an unregistered bidder.
How interested buyers prepare for auction day
If you’re a buyer looking to buy at auction, here’s what you need to know:
- Do your research to determine an estimated market value.
- Have finance approval beforehand.
- Register your interest so you can obtain a bidder’s number.
- Remember there’s no cooling-off period and you’ll need to sign the contract immediately.
Auction selling FAQs
What are pre-auction sales?
This relates to an interested buyer making an offer on your property prior to auction day. If several buyers express interest and provide pre-auction offers, the vendor is in the fortunate position of being able to choose the higher sale price. Buyers can sweeten the deal by getting their financing in order and waiving the cooling-off period.
How is the vendor’s reserve price decided?
The seller determines the reserve price in consultation with their real estate agent and auctioneer. The best way to set an agreed price you’re comfortable with is to get a property appraisal and to do some research on similar property sales in your area to determine your property’s estimated market value.
What happens if my property doesn’t sell at auction?
If the highest bid doesn’t reach your reserve price, the property is passed in and the current highest bidder has the first right to negotiate with you to work out an agreeable sale price. If a sale isn’t reached, then it’s time to talk to your real estate agent about re-marketing the property or going down an alternative sale route. Your agent should also follow up with registered buyers after the auction to see if there’s any further interest.
What are vendor bids?
A vendor’s bid is when the auctioneer bids on the seller’s behalf before the reserve price is reached. The auctioneer must announce it’s a vendor bid, which shows bidders that the seller isn’t happy with the last bid. Auctioneers use this tactic to keep the bidding moving toward the reserve price.
What happens when prospective buyers do a dummy bid?
Dummy bidding refers to people who declare a false bid to inflate the purchase price when they don’t plan on buying the property. Only bids from registered bidders are allowed and dummy bids are illegal in most states and territories. As to what happens, dummy bids attract significant penalties. For example, fees in NSW are up to $55,000.
What are real estate auction fees?
There are a few auction fees to consider:
- Professional photos (typically up to $400).
- Marketing and advertising campaign (anywhere from $500 to $10,000).
- Auctioneer costs (from $400 to $1000).
What are my other selling options?
Here are the other two common selling options:
- Sale by Tender. 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. This allows the seller to offer a broad price range. View pros and cons.
- 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 the negotiation. View pros and cons.
Choosing your method of sale
Consider these factors when choosing your method of sale:
- The kind of property for sale.
- The property’s location.
- Your chosen real estate agent.
- Your area’s current real estate market conditions.
- The timeframe in which you wish to sell your property.
- Your personal beliefs.
The best-suited method of sale depends heavily on your property, its location and your real estate agent’s skills. They’ll help you understand whether or not auctioning your home is suitable in current market conditions.
What’s next?
The best place to start is to compare real estate agents online using our free comparison tool, so you can get to know whether auctioning your home is the right decision. Browse the best real estate agents with LocalAgentFinder to discover their commission information, marketing strategies, sales history and independent homeowner reviews.