Buying A House At Auction Vs Private Sale

As a first home buyer, you may be contemplating buying a home at auction. Understanding the difference between an auction and a private sale is essential because that dream property could quickly be selling in either of these formats. So, it’s best to prepare yourself for both.

Auction vs private sale: Key differences

In Australia, residential property sales happen either privately or through auctions.

How private sales work

Private sales happen when a real estate agent lists a property with a sale price attached. They then market and advertise the property and conduct open houses or viewings. When buyers make the agent an offer, the seller can either accept or reject it, often on the agent’s advice.

With private sales, some properties can sell within days or just a couple of weeks. Others can stay on the market for months if there are issues with the property or it’s a soft market.

The median amount of time for a property to be on the market in Australia as of June 2023 was 33 days[1]. However, this figure varies from region to region and depends on the type of property on the market.

» MORE: 10 questions to ask a real estate agent when selling

How property auctions work

During an auction, a selling agent markets the property for sale. They’ll advertise it for a day when would-be buyers come together to bid.

Auctions occur in public — either at the property itself, a real estate agent’s office, online, or a combination of each. Buyers place bids controlled by a licensed auctioneer who may also be an estate agent.

The point of the auction is to inspire as much competition as possible to achieve the highest possible sale price. For this reason, auctions are held more frequently in a red-hot property market with sellers keen to cash in on extremely high demand.

Auction vs private sale: Which is more common?

The percentage of residential properties that go to auction vs private sale in Australia has always been relatively low. Although, the numbers fluctuate.

While recent figures are hard to come by, only 13.3% of properties were sold nationwide via auction in 2021[2]. The figure in capital cities was higher, at 17.6% of total sales — while only 5.1% of regional sales were through auctions.

The property’s value also determines whether it will be auctioned, and the majority of houses auctioned were valued at more than $1 million, while the median price for a house in Australia is just under $780,000 as of April this year[3].

The Australian property market is also experiencing somewhat of an auction boom. During the week of 11-17 March 2024 saw 3204 auctions[4] — a 32% increase over the previous period last year.

» MORE: How does a property valuation work?

Auction vs private sale: Which is best?

Private sales and auctions have advantages and disadvantages for buyers and sellers. So, there’s no definitive answer about which is better. That will depend on the type and quality of the property, its location, and the current state of the market. Below are the pros and cons of buying at auction compared to private sales.

Pros of buying and selling at auction

Maximising the sale price. For sellers, the attraction of an auction is obvious. An auction in a hot real estate market allows you to extract every last dollar out of a buyer. This is especially true when there’s a bidding war where several parties are desperate to obtain your property.
Picking up a bargain. A buyer may get a property at auction for less than they would otherwise pay at a private sale, especially in a softer market with fewer bidders.
Property sales happen within a set timeframe. A property listed as a private sale can remain on the market for a long time for any number of reasons. Still, a property set for auction marketed well should instil some sense of urgency for buyers. That’s because they have to bid for it there and then if they want to buy it.
Buyers can negotiate beforehand. A buyer can make an offer before the auction. This could be highly beneficial for sellers if they get such a good offer that they can dispense with the stress and aggravation of the auction itself.
Auction contracts are unconditional. The contracts are final and are not subject to finance or inspection. For the seller, this could be a pro because the buyer can’t have a change of heart and pull out as there is no cooling-off period. For the buyer, this could be a definite disadvantage if something comes to light after the auction. So, it’s imperative that you do your research. Inspect the property thoroughly and have your solicitor go over the contract of sale before bidding.
Auctions are a true barometer of the market. An auction should be the best indicator of what your property is really worth. If it is passed in and you opt for a future private sale, at least you’ll know what you can realistically charge for it.
Auctions are ideal for those selling in a hurry. If you want a quick sale without months of marketing and hoping, an auction is your best option because the entire process is shorter.
The reserve protects your property’s value. Having a reserve price means there’s no danger of your property selling for much less than it’s worth without your consent.

Cons of buying and selling at auction

No guarantees. There is no guarantee that you will sell your property at auction (or that the bidding will meet the reserve price). Conversely, as a buyer, there’s no guarantee that you’ll get the property for the price you want to pay.
Market conditions can turn. Selling in a hot market is one thing, but it may be a struggle in a cold property market. Or if there are strong economic headwinds at the time of the auction.
Auctions cost more for the seller. An increased cost is not always the case, but agents generally charge more to market a property for auction.
May struggle to sell if passed in. If your property is passed in, potential buyers know exactly how much it is worth and can adjust their offers accordingly. So, you may struggle to sell it down the track either at a future auction or by private sale.
Short turnaround time. This may be good for a seller in a hurry to offload their property. However, less marketing and advertising time could result in insufficient interest on auction day.
No cooling-off period. Buyers need to do due diligence and organise building and pest inspections if needed. That’s because if you’re a successful bidder, you are required to exchange contracts of sale and pay the deposit after the auction. Conversely, a private sale has a cooling-off period of up to five business days, depending on your State or Territory.
Public nature of auctions. The public nature of the auction means they are typically held in front of the house, so half the neighbourhood turns up. This can be off-putting for sellers who prefer not to have crowds of people coming through their homes.