Module 3 – Lesson 2 – Auction vs Private Treaty (6 Min)
What is the difference between an auction and a private treaty? We discuss the key difference in this lesson.
Did you know?
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Prefer reading? Here is a transcript of the video:
Hello and welcome! Again, this is Paul Pappas from Mortgage Choice. So, you’ve been out there looking at property and noticed that there are some properties that are being sold via an auction process while others are not what’s commonly called a private treaty. So how does this affect you in terms of how you go forward in terms of wanting to buy the property that you have that you’ve liked? Let’s have a bit of a look!
What are the differences between the two? An auction property does not have a cooling-off period. In other words, if you are successful in purchasing the property at an auction, you are required to sign the contract and pay the required deposit at the drop of the hammer. So, all your prerequisites, all your checks, all your inquiries or your negotiations in terms of contracts, and so forth all must be done before the auction because there is no cooling off. So, in other words, if you find out something afterward in terms of the property is not what you expected or anything in relation to the property. There is no cooling off for you to allow you to pull out, so very, very important that you do all your due diligence before the auction if there is one.
If the property isn’t being sold by an auction process and via a private treaty, it is common for a cooling-off period of five to ten days to apply. So, what does that allow you to do? Well, it allows you to do all the inspections that we talked about. Before the checks and balances, I should say pest and building reports and getting the contract negotiated with your solicitor strata reports getting your finance unconditionally approved, or any council inquiries that you want to do. You’ve got a period whereby you’ve agreed to purchase the property, you’ve agreed on the price, you’ve paid a holding deposit, and then you’re allowed to do all your final checks and balances. In this final five or ten-day cooling-off period, clearly that we would always prefer our clients buy a property with a cooling-off period but if the Sydney property markets the way that it is and the demand for properties being quite strong.
It is very common for properties to be sold via an auction process as opposed to private treaties, so we’re here to help you explain the differences between the two auctions that have a reserve price. In other words, the vendor has determined, or the owner has determined the minimum that they are prepared to stop to sell the property. Once that reserve price is achieved, then the property will be sold at the auction, but at the reserve price does need to be achieved for that property to be sold. So, it is common for properties to be what’s called passed in at auction. In other words, the various bids from the buyers have not met the expectations of the vendor, and the reserve price has not been obtained if you are the successful bidder, and I touched on this a moment ago.
If you are a successful bidder at the auction, you must sign the contract and pay the required deposit, and once you’ve signed the contract, you are automatically then agreeing to all the terms and conditions of the contract as presented to you, but you can negotiate those contract conditions but it all must be done via your solicitor and prior to the auction and be all in writing so that when you do sign the contract, you’re signing a contract that you’ve agreed to as amended with the owner.
Preparing for an auction, look it is very, very critical, and we get this question a lot from clients who have found a property who and the property is being auctioned not ideal, but it is what it is. So how do you get yourself ready? Well, the first thing you need to do is make sure that all your inspections are being done so if it’s a house your pest and building report, any council investigations that you want to do have to be achieved if it’s a unit strata inspections to have to be performed as well as your solicitor reviewed the contract and negotiated any changes for you very important for you to do that.
And to make sure that the document that’s been presented to you to be signed at the auction if you are the successful bidder is in your that you’re agreeable with all those terms and conditions and you can negotiate any changes to that to that contract as agreed by the vendor, but it all has to be done before the auction. It is very advisable, in fact strongly recommended, that you talk to us to make sure that you’ve got your finance pre-approved up to your maximum bid for the property that you’re about to purchase and that you’ve got your deposit available as well in terms of the 5-10% and how that will apply again.
We can give you some guidance on that as well, but certainly, I cannot recommend more strongly the importance of having your finance pre-approved before you go to an auction to put your hand up. Like I said before, no cooling off. So, you’ve got to do all your checks and balances before the auction, after the auction. It is too late if you find something else that you would have made aware of.
We do encourage that you attend as many options as possible before the auction so that you’re conditioned and comfortable with the process of what’s involved in terms of registering at the auction, the bidding process, and the language, and the communication styles of the auctioneer and the agents and just the behavior of all the important people that are there.
Get comfortable with it because it is a very nerve-wracking affair. If you’re experienced in attending auctions and getting familiar with how the process works, they can make that process a little bit smoother for you. So please do attend other auctions before your turn comes up.
Look, as always, we’re here to help you through the whole process. Please reach out to us and ask any questions that you may have at any time. Thank you for attending!
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