Knowing the difference between a buying a property at auction and a private treaty (For Sale) sale may seem simple, but there are varying costs and buyer responsibilities you should be aware of.


Understand Why an Auction Date is Chosen

When property vendors decide to sell, they will discuss an auction date with the real estate agent who will advise them on the most opportunistic auction date. Property buyers should be aware of the auction date and understand the dynamic of other similar properties being auctioned on the same date. Perhaps buyer interest will be determined on the auction or sale price of other properties. Auction dates are set to ensure maximum attendance so be aware of this as good real estate agents will try and maximise the offers at auction.


Pre-Auction Bids

Once a property is listed, it will be advertised for a period of time that is usually determined by the seller’s preferred method of sale. If the house will be sold by Auction, then the date for the Auction is set in advance and potential buyers must make all of their relevant enquiries. In some instances, such as deceased estates or foreclosures by mortgage holders, the property must sell at auction. However, in most other cases, the vendor will instruct their real estate agent to seek bids from property buyers prior to the auction.


For Sale

You may have noticed the words ‘For Sale’ on property advertising boards outside the house or apartment. A savvy buyer will choose the right time to submit an offer. Vendors who are selling their property by private treaty can be holding out for a higher price than what the market is willing to pay. A buyer who has done their research will often have a precise offer in mind and depending on the interest in the property, this could be a fantastic buying opportunity.


Pricing Difference of ‘For Sale’ and ‘Auction Reserve Price’

With a private treaty sale, a price for the property will be clearly stated, or a range within which offers are anticipated – depending on where you are in Australia. However, with an auction, the owner’s ‘Reserve Price’ remains a secret until the auction itself. At auction, the market determines the price and, if that exceeds the owner’s reserve, the property will automatically be sold to the highest bidder. The auctioneer will be explicit about this at the commencement of the auction.

At an Auction, once someone bids for the property at or above the reserve price, the property is officially ‘on the market’. In a Private Treaty sale, the homeowner’s real estate agent will be contacting potential buyers before the property is even advertised so when you first see an advertisement, there may already be significant interest.

At an Auction, all of your competition appears on the day, for you to eye deviously from behind your sunglasses and take away coffee. By contrast, with Private Treaty, the agent may have numerous buyers all interested in the property at once that you don’t see or know anything about. This makes your negotiating tactics a little trickier, but it can pay off if you are the hottest (or only) member of the competition.


What Happens When Auction Reserve Price Is Not Met?

In an auction, if the reserve is not met, the real agent will negotiate between the homeowner and the highest bidder to try and reach an agreeable sale price.


How much Deposit is Payable?

In both cases you are required to pay a deposit on agreement of the sale price and signing the contract of sale. However, the 10% deposit you pay at auction is locked in and there is no cooling off period after your bid is accepted. You have to pay a deposit also for a Private Treaty sale too but this is sometimes negotiable, in the light of the price you are offering as well as settlement terms.


Property Settlement Dates

It is important to understand that property vendors may be more inclined to accept a lower offer with short settlement dates. For instance, in New South Wales, settlement is typically 42 days and in Victoria it is 45 to 60 days. Flexibility to work in with the homeowner’s wishes is key to coming up with an attractive offer and this is where open dialogue with the agent can really help you.

Whichever of these situations you find yourself in, the important thing to remember is that you must be serious, be clear about your decisions and respond quickly and decisively when the ball is in your court. Be sure you have your finance secured, your inspections need to be completed, and you need to have a good strategy that means you walk away with the keys before anybody else does.


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The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.