Private Treaty versus Auction

Private Treaty

Once you’ve sorted your loan and organised the inspections, you’re ready to make an offer or bid at auction. In fact, you can make an offer even before you receive formal loan approval and the inspection reports, so long as you specify that the offer is conditional on finance or depending upon the result of the inspection.

When a property is being sold by private treaty, you make an offer to the agent, who will present that to the vendor (owner). The vendor will then decide whether or not to accept your offer. Usually there’s some negotiating over the price – or another buyer could simply step in with a higher offer and you could lose out.

Even when your offer has been accepted, it’s not legally binding on either of you until the contracts have been exchanged. You can still be gazumped – which means that the vendor could accept someone else’s better offer.

So how much should you offer? The rule of thumb has traditionally been to make an initial offer of 10 per sent below the asking price, so if it were a $500,000 property, you’d start by offering $450,000. But this isn’t always going to be right. You could still end up paying too much, or missing out on the home that’s perfect for you.
The best approach is to do your research first so that you know what the property is worth – based on what similar homes in that area have sold for – then make your offer based on that information.

Some tips on making an offer

• Don’t go with your highest offer first, unless you know for certain that the owner is seriously considering other offers. At the same time, there’s no point going in with a ridiculously low offer, because you could just get the agent and vendor offside.
• Find out as much as you can about the vendor from the agent. If the vendor is in a rush to sell because they’ve committed elsewhere, you might be able to knock more off the price, but don’t forget that the agent is acting for the vendor, not you.
• Try not to give away how much you love the place, because the agent may think they can get a better offer out of you.

There are two types of offers:

Unconditional offer – You have to be absolutely certain that this is the property you want if you are going to make an unconditional offer, and you also must have sufficient funds to purchase the property. Once the vendor has accepted your offer, you are legally obliged to go through with the sale.

Conditional offer – A conditional offer is also a binding contract, but only if all the conditions you specify are satisfied. Otherwise you can legally back out. Conditions may include one or more of the following:

• Subject to valuation – the sale will only go ahead if the valuation of the property is acceptable to you and your bank.
• Subject to finance – the sale will only go ahead if the valuation of the property is acceptable to you and your bank.
• Subject to a satisfactory builder or surveyor’s inspection – the sale will only go ahead if you are satisfied that the house or land it is on is sound.

There are of course many other conditions that you set, such as subject to repairs being carried out. Either way, speak with your solicitor about what your rights are and if you’re unhappy with any element of the sale. And lastly, don’t sign anything until you’re satisfied with the conditions.

Bidding at Auction

You may find that the property you have your heart set on is up for auction. Just be aware that buying at auction requires thorough preparation beforehand. Before the auction, you need to have your finances sorted, you should have had the building, pest and strata inspections carried out, and your solicitor or conveyancer should have looked over the sale contract. In some states, you must also register as a bidder with the agent before the auction.
At an auction, bidding usually starts in large increments of $10,000 or so, and may finish up in increments as small as $500. Bids can be made either verbally or with a nod or hand signal, but once a bid has been made, it can’t be withdrawn.
If and when the reserve price set by the vendor is reached (this is kept secret from prospective buyers), the property is ‘on the market’, which means it will go to the highest bidder. If that’s you, then you have to sign the contract and pay the deposit immediately – there is no cooling-off period. If the reserve isn’t reached, the person who made the highest bid usually has the first right of negotiating the sale.

Some tips for making a bid

• Attend a few auctions, so you know what to expect. You’ll become aware of tactics used by agents and auctioneers (eg: vendor bid) as well as tactics used by other bidders (eg: putting in a ‘knockout bid’ to intimidate everyone else). Some states have rules about how auctions are conducted – make sure you’re familiar with them.
• Know your limit and stick to it. If you’re worried you’re going to get carried away, get someone else to do the bidding for you.
•  If you’re prepared to make a good offer, you can make it before the auction