Buying a property in Australia is done in two ways - auction or private treaty sale. While we tend to see auctions hit the media, buying a property by private treaty is the most common way property is sold day today.
If you’re about to skip the auction process and buy a new home via private treaty, we’ve put together some great tips on what you need to know about the sales process.
What is a Private Treaty Sale?
Let’s start right at the beginning. You may not have heard it referred to as a private treaty sale, but essentially this is where the seller sets the price they want to achieve for their property. The price is determined after research into the market and discussions with their sales agent to determine what the most realistic price outcome would be.
From here, the property goes through the normal process of marketing and open homes, where the agent will negotiate with potential buyers on behalf of the seller.
Once a price is agreed to, the buyer makes a deposit and, depending on your state; the contract enters into a cooling-off period. You can back out of the contract at this stage, but again, depending on your state and the contract you signed, you may lose some of your deposit. The most common reasons for backing out of a sale are the pest and building inspection failing or the buyer not being able to obtain finance.
There are pros and cons to buying via treaty; however, many buyers prefer it as it doesn’t hold the stress of bidding at an auction, particularly if you’ve never attended one before.
Some of the biggest advantages to buying this way include the ability to negotiate price and terms, as well as having the time to do building and pest and other inspections. The downside is that, unlike an auction, buying via private treaty isn’t a 100% transparent process because you can’t see the other people putting in offers.
Buying via Private Treaty vs Auction
Apart from the pros and cons, there are some key differences in buying via private treaty sale and auction. Let’s explore the differences.
Private Treaty Sale
- The vendor sets the price and then negotiates with interested parties.
- While you are unaware of other offers on the table, you do have the flexibility to negotiate on price and terms of the contract.
- Cooling-off periods give you the ability to walk away from the sale, albeit with a potential cost.
Auction
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The vendor sets a reserve price (minimum price) before the sale, and then any potential buyers will set the final price through the bidding process. The reserve isn’t often set until the hours before the auction.
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The process is completely transparent - you can see the other potential buyers and be aware of what they are prepared to pay for the property.
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There are no cooling-off periods. Contract conditions need to be negotiated before the auction, and the contract goes unconditional once the auction is complete. Longer settlements and smaller deposits are common in auctions. However, you need to have your finances sorted before bidding.
The Process of Buying Via Private Treaty
If this is your first time buying a home via private treaty, you may be wondering about the sale process. Below is the basic process - each state will have its own requirements in terms of contract times and cooking-off periods.
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Price is set and marketed.
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Inspections are held, and offers are made.
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The two parties negotiate to reach an agreed price and terms.
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Contracts are issued and exchanged.
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Contract conditions are undertaken - valuation, finance, building and pest inspections, legal searches.
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Once contract conditions are met, the contract goes unconditional, and the buyer pays a deposit.
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Cooling-off period begins.
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Settlement occurs, money is exchanged, and the buyer picks up their keys.
Within these steps, the conveyancers or solicitors for each party, as well as the lender for each party, will be working behind the scenes to fulfil all contractual obligations of the sale.
Differences in Private Treaty Sales from State to State
Buying a home will vary from state to state, with the main variations being within the cooling-off periods and whether deposit fees will be forfeited upon pulling out of the sale. Understanding these differences will help when it comes to purchasing your next home.
The cooling-off period in all states ends at 5 pm on the final business day of the relevant timeframe. We put together the differences on private treaty sales in each state.
Private Treaty Conditions in NSW
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Cooling-off period is five business days from the day when both seller and buyer sign the contract.
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If the contract is terminated during the cooling-off period, the seller may impose a fee of 0.25% of the purchase price.
Private Treaty Conditions in Victoria
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Cooling-off period is three business days from when the buyer signs the contract.
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If the contract is terminated during the cooling-off period, the seller may impose a fee of 0.2% of the purchase price.
Private Treaty Conditions in Queensland
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Cooling-off period is five business days from the day when both seller and buyer sign the contract.
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If the contract is terminated during the cooling-off period, the seller may impose a fee of 0.25% of the purchase price.
Private Treaty Conditions in South Australia
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Cooling-off people is two business days from when the buyer and seller sign the contract or when the buyer receives the vendor’s statement.
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If the contract is terminated during the cooling-off people, any deposit over $100 must be refunded in full, while any holding deposits will go to the seller.
Private Treaty Conditions in Western Australia
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No mandatory cooling-off period
Private Treaty Conditions in the ACT
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Cooling-off period is five business days from the day when both seller and buyer sign the contract.
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If the contract is terminated during the cooling-off period, the seller may impose a fee of 0.25% of the purchase price.
Private Treaty Conditions in the Northern Territory
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Cooling-off people is four business days from the exchange of contracts.
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If the contract is terminated during the cooling-off period, there is no forfeiture of the deposit.
Private Treaty Conditions in Tasmania
- No mandatory cooling-off period