WHAT IS THE BEST WAY TO SELL YOUR PROPERTY?
THE SELECTED METHOD NEEDS TO MATCH YOUR OBJECTIVES AND YOUR PROPERTY
It's not a matter of one size fits all.
No one particular sales approach should ever be automatically prescribed by an agent and this is especially relevant given the emergence of ‘auction’ as the sales method preferred by many national franchise and other real estate agencies. It might be the easiest method for the agency—but is it best for you and your property? Scroll down to read about the main methods of sale and some of their pros and cons.
SALE BY NEGOTIATION
ALSO KNOWN AS SALE BY PRIVATE TREATY
This is the sales process that most people (both sellers and buyers) are familiar with and traditionally use. Especially in the Far North.
Private treaty provides for either an open or closed time-frame (the latter being a ‘sale by deadline private treaty’) and for negotiation between the parties. It is a quite civilised process—offering sellers time to consider offers (without the pressure inherent with the auction process) and offering buyers time to undertake adequate due diligence. If a property is in high demand, sellers still have the potential to find themselves in a multiple offer situation—but where they are more in control of the process. Prospective buyers are required to make offers blind (like the tender process) without the benefit of knowing what other buyers may be prepared to pay as is the case in the auction room. Sale by private treaty requires the seller to nominate a sale price. The sale price should ideally be supported by the seller’s own independent valuation and/or recent sales in the locale. The sale price can be disclosed in advertising and marketing collateral or can be made available only on application (“POA”).
SALE BY AUCTION
CAN BE EFFECTIVE IN THE RIGHT MARKET FOR THE RIGHT PROPERTY
But bear in mind that less than 3% of residential properties were sold by auction in the Far North in the year ending 18 Jan 2018 (Source: REINZ).
Auction can be a fabulous way to sell your property. However, sellers should view with caution any agency recommending going straight to auction without adequately justifying the approach. That means properly considering the nature of the property, the market at that time, likely demand for the property and the client’s price expectations and objectives. Circumstances where auction can work well include; (1) where a property is exceptional (i.e. not unique but, rather, something patently in demand), (2) where market and economic conditions are very strong and there are a quantified large number of potential bidders and (3) where the seller is under time pressure or financial duress (i.e. in a forced or mortgagee sale situation). Where there are few genuine buyers, the auction system may result in a lower price than might otherwise be achieved by another method. Even if there are two or more buyers at the auction, the property usually sells for slightly more than the second highest bidder is prepared to pay. The typical auction marketing time-frame of four weeks that is now common practice may not expose a property to the maximum potential market for the optimum period. Prospective buyers who have to sell their own property first, or who need to complete detailed due diligence, or who are overseas, or who need to terminate an investment or raise finance, etc. won’t have sufficient time to react and therefore won’t participate.
SALE BY TENDER
APPROPRIATE WHERE VALUE IS HARD TO DETERMINE
The price difference between the highest tender and the next closest tender can sometimes be quite large.
Tenders are often suitable where it is difficult to determine value or demand. For example, due to the influence of planning issues, heritage protection, where there is an opportunity to further adapt or modify the property, where the property is truly unique, or where supporting sales evidence or buyer numbers might be lacking. The process is similar to auction in that no selling price is indicated and there is a definite time-frame within which potential purchasers need to make decisions (i.e. a call-to-action). Potential buyers are required to undertake due diligence and submit their offer by the tender closing date. Interested parties have no knowledge of what level other tenders are at and they are therefore forced to submit their best offer. As such, the price difference between the highest bidder and the next closest bidder can sometimes be quite large. All tenders are required to comply with the terms of the tender outlined in the documentation. The tender process requires bids to be in writing as per the specified form of contract, generally unconditional and non-revocable for a fixed period post-closing date, and to be accompanied by the required deposit amount. Potential buyers can, however, elect not to comply with the conditions of tender and instead include their own terms (e.g. an extended settlement period, different deposit amount, consent for a specific non-complying activity etc.). The seller is normally free to accept any (or no) tender and may negotiate with any party post closing date as the seller sees fit. The process is entirely private and no prospective buyer has any knowledge of the other bidders or bids. At the end of the process, if the property does not sell, both the seller and bidders have not publicly disclosed their expectations in terms of price and thereby the seller’s position is not compromised. The process puts the seller in full control and in certain circumstances has distinct benefits over the auction process. However, whilst common in the commercial property sector and arguably a more effective tool than auctions, the tender process is less familiar for residential property buyers and sellers.
THERE ARE SPECIALISTS IN EVERY PROFESSION & TRADE FOR VERY GOOD REASON
The need to appoint a specialist is as valid for selling your property as it is for setting up your family trust or re-wiring your home. If you try it yourself you'll very likely be disappointed in the outcome.
In the commercial sector where property owners and their advisors are usually commercially savvy and highly experienced, most value the benefit of appointing a property professional to manage the process and deal with prospective buyers at arms-length. Residential property sellers should too! If you want to be certain you’ve presented your property in the best possible light, promoted it to the widest possible market and negotiated the best possible deal—select an experienced professional, incentivise that person appropriately and you should then expect a great service and outcome.