Auction vs. Private sale: What’s the difference?

Even if you’re new to the property hunt, you’ll probably be aware of the two main methods used to buy a property here in Australia: auctions and private sales.

Knowing the differences between these two approaches - as well as what’s involved in each one - can make it easier to navigate the home-buying process and make more informed decisions along the way.

Let’s explore some of the key characteristics of both auctions and private sales, so you can be ‘in the know’ about buying a property.

Buying a property at auction

What is an auction?

An auction is a public sale where prospective buyers bid against each other to purchase a property. 

Auctions typically take place on a specified date and time, with the highest bidder securing the property at the fall of the hammer. 

What are some key features of auctions?

Transparency

With all interested parties gathered together in one location to bid on the property, auctions have the advantage of transparency and openness. 

They can also provide a clear indication of the property’s market value based on the level of buyer interest and bidding activity.

Competition

As you may have seen, auctions have a competitive atmosphere - and this level of competition can serve to drive up property prices, especially in high-demand markets.

Bidders need to act quickly and decisively to outbid their competitors, which can lead to a sense of urgency among buyers - not to mention bidding above your limit in the heat of the moment.

Unconditional contracts

If you’re the top bidder at a property auction, be aware that you’ll be required to sign an unconditional contract and pay a deposit immediately after the auction.
With an auction, there’s no cooling-off period and the sale is legally binding from the moment the successful bidder is announced.

Limited negotiation

Once a property is sold at an auction, there’s limited room for negotiation on the purchase price or contract terms.

As a buyer, you’ll need to agree to the terms outlined in the auction contract, as well as accept the property in its current condition - meaning it’s crucial you’ve done your due diligence and performed all necessary inspections before the auction date.

Purchasing a property through a private sale

‍What is a private sale?

When a property is sold privately, it is listed for sale at a fixed price or with a price range, and interested buyers then negotiate either directly with the seller or their agent.

Private sales tend to offer a more flexible approach with less of the competitive nature seen at auctions.

What are some key features of private sales?

‍Opportunity to negotiate 

Private sales allow for negotiation between the buyer and the seller, giving both parties the opportunity to reach a mutually acceptable price and terms. 

When purchasing through a private sale, you may have more flexibility to negotiate on the property price, settlement terms, or other conditions of the sale.

Flexibility

Unlike an auction, a private sale doesn’t stipulate a specific date on which the property needs to be sold, meaning you’ll have more flexibility in terms of timing.

As a buyer, you’ll have the freedom to make an offer at any time, and the seller can choose to accept or reject this based on their preferences. Of course, this means you can run the risk of losing out to another buyer who places an attractive offer before you.

Conditional contracts

Unlike auctions, private sales often involve conditional contracts, allowing buyers to include conditions such as building inspections, finance approval, or sale of their existing property. 

These conditions mean you have added protection and flexibility during the purchasing process, without being locked in to take the property if it fails to meet certain criteria.

Less pressure 

In general, private sales involve less pressure than auctions, as there’s no competitive bidding or time-sensitive decision-making that needs to be done on the spot.

With a private sale, you’ll have the chance to carefully consider your options and conduct due diligence before making an offer and finalising your purchase.

Auction or private sale: Which method is right for you?

The choice between purchasing a property at auction or through a private sale will depend on your personal preference, circumstances, and the current market conditions. 

What’s more, you may have to be open to either option depending on the method being used for your chosen property.

Before embarking on your property search, consider factors such as your budget, timeline, risk tolerance and negotiation skills, which will help you decide which approach is most suitable for you.

You may also want to seek professional advice from a property expert who can help guide you through the process.

Whether you choose to dive into the competitive atmosphere of an auction or would prefer the lower-pressure appeal of a private sale, being prepared and informed will help you make the best decisions on your journey to home ownership.

Keen to learn more about the home-buying process? Check out our other articles and stay in the know about all things home loans.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍