Auction versus private treaty: let the battle begin

Are agents who prefer selling via private treaties really hiding the true price of a property from the vendor, as some auction-focused professionals suggest? Real Estate Business explores what can prove a
divisive issue

The results of a straw poll published in Real Estate Business seem to have sparked something of a controversy. The question: What is the most effective sales strategy in the current market – auction or private treaty? More than 64 per cent of the 322 responses the poll generated indicated that private treaty is the most effective sales strategy in the current market, and it was this result that prompted Ray White Caloundra Group’s director, Tom Garland, to contact Real Estate Business with a contrary view. Quite simply, he told us, agents who are not actively embracing auctions in the current flat market are not being honest with their clients.

“As the prices of properties fall, only the poor agents fall back to private treaty,” he says. “This type of agent shies away from the true, tough nature of our industry—the truth and brutal honesty. That truth is to be honest with our clients and give the news from potential buyers back to the seller as to what they believe properties [are] worth.”

Mr Garland adds that auction-driven sales are thriving in the Sunshine Coast area of Queensland, and that his business would have “gone belly up long ago” if it had not embraced auctioneering.
Results this year show Mr Garland’s office is clearing 79 per cent of properties in 48 days through the auction process, while private treaty clearance is running at 18 per cent on 121 days.

“If you’re backing a horse in a race, wouldn’t you back the horse with the shortest odds?” he asks.

Phil Harris, managing director of Harris Real Estate in Adelaide, agrees with Mr Garland’s sentiment. He says he has noticed more South Australian agents listing properties on an ‘expression of interest’ basis, which usually means an inflated selling price.
Agents who do this, he says, are unlikely to have confronted the vendor directly on price, which is usually a sign they lack confidence and/or experience.

“It’s the easy option,” he says.

Mr Harris, a winner of the Society of Auctioneers and Appraisers of South Australia’s Golden Gavel Auctioneering Championships, says it is this lack of experience that is the most likely reason for so many agents having left the industry in recent times.
Auctions usually speed up the sales process by forcing agents and vendors to understand what the market will pay.

“An auction is a great way to establish what a property is worth,” he says.

Toby Hutton, director at Raine & Horne’s Manly and Freshwater offices, located on Sydney’s northern beaches, says property selection is critical in deciding what to sell at auction.
Mr Hutton says he will only auction a property if he is confident it has the features that buyers are looking for; the state of the market or economy has much less to do with his decision making.

“There’s no point in auctioning everything,” he says.

Properties that are on level land, have a north facing rear, are located close to public transport and are positioned on a quiet street are generally ideal for auctions, he says. According to Raine & Horne Manly’s website, Mr Hutton retains a 90 per cent success rate at auctions.
Real Estate Institute of Australia chief executive Amanda Lynch says both auctions and private treaties have their benefits and weaknesses, although it is important for real estate agents to note the disposition of the likely buyer when deciding on the best-selling method. For example, nervous first-time home buyers are generally more likely to prefer a private treaty as it is more controlled and predictable than an auction.
The set timeframe of an auction might help to make a sale more quickly, she adds, and it can also create a sense of urgency among potential buyers. Yet vendors could find themselves back at square one if the bids don’t reach the reserve price.

Mr Hutton says properties that are passed in are generally at a disadvantage when it comes to negotiating a new price via private treaty. Buyers, knowing the failed auction result, often push harder for a bargain.
Contrary to Mr Garland’s comments, however, Ms Lynch says recent national property sales statistics suggest softer markets equate to more private treaties and fewer auctions, particularly in Perth and Queensland.
In these markets, sellers are setting the tone, preferring the ability to negotiate hard that private sales generally present.
She adds that auctions are generally more popular when markets are red hot, when agents can count on a good crowd of bidders turning up, ready to do battle for the property being sold.

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