The art of private treaty

It is a big question whether or not to sell a property via private treaty or at auction. Each method has its own advantages. These vary according to timing, flexibility, competition, and value attainment.

In rising markets there is favouritism towards selling at auction. This is due to the increased sense of urgency and competition that an auction may provide. Having no price boundary, or expectations out in the open, can be advantageous in a hot market. However, as markets cool down, the skills to privately negotiate a sale become essential.

Features of a Private Treaty sale

Selling by private treaty often involves:

• Open houses
• Utilisation of the agent’s network of interested buyers
• Multiple offers from interested parties
• Flexible structure in the transaction

Despite these advantages, sellers may have the impression that there will be a longer showing period; drawn out negotiations and back-and-forth with buyers; and a longer time before closing. Yet this doesn’t have to happen. If sellers find themselves regretting the private treaty route, these can be indications of a poor agent out of touch with their market. It can also indicate an insufficiently populated buyer list to spike interest in the property.

An auction is not necessarily a better strategy for selling a property. An auction may just hide an agent’s existing inability to generate sufficient interest. And although the property might meet reserve, the seller may not have struck the best deal.

What can make a Private Treaty better?

Appointing a great agent is key. What can agents do to be better at these types of sales?

Use closed-doors to your advantage. A good agent creates competitive tension between potential buyers through private negotiations that have no clear outcome. A seller can wait for better offers or strike a deal quickly. This means buyers should make their best offer sooner.

Make flexibility a hook. If you need to move with non-standard terms or if some level of flexibility concerning aspects of the property is going to hook a buyer then you have the customisation factor with a private treaty to do this. A fast-working lawyer here is as important as an agent with great communication skills. The lawyer should be aware that time is not on her side and the agent must keep the lawyer abreast of what needs to be implemented in the draft contract.

Entertain cooling off periods and conditional contracts. A cooling off period or conditional contract can be a solvent to a buyer’s sticking points. Agents should be open minded enough to pitch a small amount of uncertainty to the seller as a positive in the greater scheme of securing the best deal. Agents should retain residual interest in the property by notifying the unsuccessful potential buyers of the nature of the deal.

Structure inspections. Structuring inspections (and open times) to ensure that prospective buyers’ overlap with one another creates competitive tension and confirms multiform interest in the property.

Demand a price minimum. Agents should be sufficiently confident to set the floor on the price of the property. Low balling can resultantly be discouraged. Agents should qualify potential buyers, particularly with regards to finance, before they get a look-in.

Buyers lists. Agents should develop structured lists of prospective buyers interested in a property type or area. Agents should have their key areas firmly researched and keep updated with regards to changes in zoning and new developments. Sellers can always ask whether an agent keeps a database of potential buyers but agents should just use this as a selling point when seeking to be appointed to a sale.

Auction or private treaty?

Choosing between a private treaty or action requires careful consideration. A good agent will be able to sense if it is the right time for a particular property to go to auction. (In other words, a good agent will know if a property will generate enough interest to go down that path).

It is easy to assume that if many auctions are taking place in a market that there must be an abundance of buyers. Yet in some circumstances this may not apply. Statistics around auction clearance rates are not always generalisable to each and every property. Certain properties may not be generic to the market and may require a more tailored approach. In these cases, a private sale may be optimal, where an agent can assess the market, promote competition, and negotiate offers on an individual basis. A great agent will guide sellers on the right path.