What is a private treaty sale?

Home auctions make great TV. There’s tension, drama, anxiety, then finally someone screams, ‘SOLD!’ Then there are hugs and tears.

Treaty sales are actually the most common way properties are sold in Australia. This is where the seller sets a price they want, and they negotiate with prospective buyers through an agent. Not as flashy as an auction, which is probably why you don’t see them on TV.

The first step in the process of a private treaty sale is the seller of the house sets a price.

With help from an agent, they’ve researched the market and decided upon a price they think they can sell at and that people will buy at.

The marketing begins, offers are presented, and negotiations begin. Inspections are made by potential buyers, contracts are finalised and signed, and a deposit is made.

During the cooling-off period, final inspections are made. These are called pre-settlement inspections, just to make sure everything is in order.

If all goes well, the final balance is handed over in exchange for the keys to a new home.

There are a few differences between a Private Treaty Sale and an auction.

In a private treaty the seller sets the price from which to negotiate, you are not aware of any other bidders or prices in the process and there’s a cooling-off period where you can walk away if you’re not happy.

At an auction a reserve price is set, but the final sale price is achieved through the bidding process, all bids are transparent and known by anyone bidding on the property, and there’s no cooling-off period. Contract conditions must be set before the auction commences.

How much does it cost to sell by private treaty? Well, there are two main costs involved in selling by private treaty: commission and advertising.

Commission, for the agent, can range between 1.5 – 3.5 per cent of the final selling price. In some cities, there is downward pressure on commissions due to the large number of agents competing for your business.

Compare different agents and their commissions. The smallest differences in commission could save you thousands of dollars.

When it comes to marketing, the industry standard suggests that approximately one per cent of your final sale price should be invested into your marketing.

If you sold your house for $750,000, you would be paying commissions between $11,250 and $26,250, and your marketing budget would be around $7500.

As with most things, there are good aspects and not so good aspects of selling via a treaty of sale.

The good things include privacy for all parties involved. The final sale price may be published, but the process is kept from probing eyes.

For buyers it’s a lower in pressure for buyers. Auction can sometimes get too much. If the emotion grips a bidder, they might bid over their budget. This could cause complications. With a private treaty, while it isn’t more relaxed, there is less buyer stress involved.

You have many options on when you sell and how much you choose to sell for. Auctions are right then and there, which could be too much for a seller to take.

When it comes to the not so good things, offers of interest can come in at any time, so if you want a quick sale, this might not be the option for you.

If you don’t do some thorough research of your suburb and the vibe of the buyers, you could undervalue yourself. It can be very tricky to negotiate upwards.

It can also be a lengthy process. The buyer thinks about your offer and makes a counteroffer, and so on. It can go back and forth. And if a buyer doesn’t like your offer, they can back out, and you have to start all over again.

In Victoria, the cooling-off period is only three days from when the contract is signed by both parties.

– BY REALESTATEVIEW.COM.AU