The decision to sell a home is not one to be taken lightly. There is a lot to consider during this selling process, but perhaps the most important is choosing between an auction sale or a private sale.
For many, an auction can result in better dividends than a private sale, but it all depends on your goals and timeline. Both options have pros and cons, so it’s up to you to decide whether the benefits and drawbacks work for you.
Understanding the differences between the two and working with your realtor can ensure you get the best possible price for your home. Our guide will help your decision.
What is an Auction Sale?
You have probably seen the auction sale process a thousand times before. The event involves potential buyers bidding on your property. At the end of the auction, the highest bidder “wins” the auction and becomes the property buyer.
However, that does not mean that the buyer automatically becomes the owner. The property purchase can only go ahead if the bid matches or exceeds the reserve price, which is set by the owner/seller of the property.
The reserve price is what you consider the value of your home to be worth and what you would like to sell it for. While setting a price, you should be realistic and understand the dynamics of your property and the current real estate market. It’s best if you consult your real estate agent or realtor, who will be organizing the auction, to provide you with an idea of what the reserve price should be.
There are two caveats to the reserve price: 1) if the bidding reaches or exceeds it, even by a dollar, you must legally accept the bid; and 2) if the bidding does not reach or exceed the price, it will be “passed in” – another way of saying that it will not be sold at auction.
Of course, you can also sell the property prior to the auction (through a private bid), the day after it and if it is “passed in” by negotiating with the buyer.
If you can’t sell it, you can have another auction at a later date or start the process of a private sale.
Pros & Cons of Auctions
There are both pros and cons to the auction process. Understanding both sides can ensure that you make the right decision when selling your property in the future.
Pros:
- You choose the reserve price of the property, which means you ultimately decide how much you’ll make from the property
- You set the timeline in which you want to sell the property, including a settlement date that suits you
- It’s a quicker process, resulting in you selling your property within a month
- The buyers at the auction are serious buyers with the intention of purchasing your property then and there
- The added competition between bidders can drive up prices
- You eliminate the stress and hassles of organizing staging and showing your property while dealing with buyers
Cons:
- The public nature of auctions might deter some buyers, as the bidding can become aggressive and prices go sky-high
- Organizing and staging the auction, plus advertising can be costly. You’ll have to hire a private auctioneer to run the event for you while paying a commission to the realtor in some cases
- If the property is passed in, it might indicate to buyers that your price was too high, meaning you’ll have to reduce it next time or risk losing buyers
- The property might not sell in auction
What is a Private Sale?
Also known as a “private treaty”, this process involves a buyer bidding to buy the property directly to the seller. The offer is either accepted, rejected or further negotiated to see if a deal can be agreed upon. If the price is agreed upon, a contract is signed by both parties.
From there, there is a cooling-off period (usually between a few days to a few weeks) where either party can pull out of the agreement. However, once the cooling period has passed, the legal contract is binding, and the sale must go through.
As a seller, you’ll have to organize the private sale through a real estate agent or realtor, who will market your property, placing it on listings (such as MLS) and acting on your behalf to sell the property.
The agent or realtor is the one that will speak with prospective buyers, draw up contracts and negotiate the deals. In many ways, this is the most common way sellers can successfully sell their property while also making enough money.
Pros & Cons of Private Sales
Similar to auctions, there are both pros and cons associated with private sales. We consulted with Emily Jones Real Estate, an award-winning Greater Toronto Area Realtor, for some tips. Let’s take a look at the key points below.
Pros:
- You don’t have the pressure of auctions, meaning you take the time to think about the offers that come your way
- There are fewer pressures to accept low offers
- The discreet and easy-going process is a blessing for most buyers. Plus, you’ll get buyers who can generally afford your property and pay for it
- You are in control of the sale and can enjoy greater flexibility with contract clauses during the negotiation period
Cons:
- You don’t know when you’ll sell the property, which can drag on for many months, and even years
- The lack of competition in an auction means you might struggle to generate a higher price for your property
- You have to set up times for viewings, which can be a hassle
- You’ll have to pay the realtor commission for the sale of your property
- The cooling-off period means that the buyer can back out of the deal
What’s the Best Decision for Your Property?
Ultimately, it depends on your goals, timeline and the current real estate market.
In a hot market, you can make more by putting your property up for an auction, as the competition can drive the price up. In a cooler market, a private sale might give you more control over selling your property.
The only way to truly know the best decision is to speak to your local real estate agent or realtor. These are the experts that can assess your property, its value and the best way to sell it. Explain your reasoning, listen to their advice and weigh up the pros and cons of each, alongside the associated costs with both of them.
Ensure that whatever process you choose, you are comfortable with it and understand its finer dynamics.
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