How To Best Negotiate a Private Treaty Sale
A private treaty sale occurs when a house is listed for sale with an asking price or price range and a potential purchaser presents an offer to the vendor via an agent. The vendor can decide whether or not to accept the offer.
Generally speaking, negotiations go back and forth between the vendor and the purchaser via the real estate agent until a price is agreed upon.
While the seller may have an end-date in mind, unlike an auction, there is usually no deadline to sell the house. The property can be on the market for as long as it takes to get the vendor’s desired price.
The private treaty process
With a private treaty sale, you cannot see or get a sense of any other potential buyers like you would with an auction. However, this method is the preferred option for many due to the ability to negotiate.
When selling by private treaty, there is a step-by-step process that vendors and purchasers go through to secure the sale:
- Price is set by the seller. A price or price range will be determined with your real estate agent. Their role is crucial because they can advise from the start, especially when it comes to understanding the market. They can provide an idea of the current market conditions, when a good time is to sell and how to decide on the price. Remember, a private treaty often involves negotiation. It is rare that a purchaser will not negotiate on the price, so it is a good idea for vendors to keep this in mind when deciding the price.
- The marketing starts. This includes dressing the property if required, organising photography and creating marketing collateral. Sometimes, this will be purely digital; other times, it may involve printed brochures and floor plans. It also involves facilitating open homes, so potential buyers can inspect the property.
- Offer presented. If a buyer wishes to present an offer, it will go via the real estate agent. It is the agent’s job to take the offer to the vendor with the required documentation.
- Negotiations occur. Usually, there will be a round of back and forth communication between purchaser and seller, via the agent, to settle on the final price. It is a real test of both parties’ negotiation skills on the price and the terms of the purchasing contract.
- Inspections happen. During the negotiation, it is a good idea for the potential purchaser to undertake any necessary inspections like for pest, building and valuation purposes, if they haven’t been done already.
- Contracts are finalised and exchanged. Legal representation on both sides and the real estate agent usually facilitate this.
- Deposit is paid and cooling-off period begins. The cooling-off period will vary from state to state, ranging from none (similar to usual auction conditions) to five days. If the contract is terminated within the timeframe, the seller may impose a fee on the purchaser. The amount of this fee would have been set in the negotiation period.
- Settlement inspection occurs and then settlement. Most purchasers will conduct a pre-settlement inspection the week prior to the final settlement. If everything is in order and in line with the contract, the final money is exchanged and the buyer is handed the keys.
Tips for negotiating
A private treaty sale can be a real test of your negotiation skills. There are some tips and tricks that you should keep in mind, whether you are the purchaser or the seller.
Make research a priority
The seller will usually list the property slightly higher than their desired price, anticipating some negotiation from potential purchasers. Have a look at recent, comparable sales in the area so you can get an idea of what you really should be paying. For the purchaser, research can also include getting a better understanding of the vendor’s motivations. Why are they selling? Are they in a rush to sell because they have already purchased? As a buyer, always remember that the agent is working for the purchaser and will do everything in their power to get the best deal for their client.
Land on a realistic offer
As a buyer, it is essential to decide on your top offer. Getting pre-approval is part of this step, and this will give you a sense of how high you can go and what you can comfortably afford, or what is going to stretch you to the limit. Deciding on your initial offer figure can be determined by outside factors. If there is a lot of interest in the property, it may be worthwhile going at the top-end of your bracket to secure the property faster. A key thing to remember is that if you go in with a low offer, you risk that another party will knock you out with a higher price.
Put every offer in writing
A serious buyer is deliberate in what they communicate and when, steering clear of vague behaviours such as mentioning prices when liaising with agents and vendors. When you make an offer, be sure to include any terms you would like to negotiate on as well. This shows that you are really interested and prepared to reach an agreement.
Stick to your guns
You need to be prepared to go back and forth on some elements of the contract, which will likely include price. But if there are some non-negotiables, stay strong. And always keep in mind your lowest dollar - what is the bottom offer you are willing to accept?
Unconditional versus conditional: what offer should you put forward?
In a private treaty sale, there are two types of offers that can be made: conditional and unconditional.
As it suggests, a conditional offer is one that is subject to certain contract clauses. You may, for example, present an offer conditional on the sale of another property or finance being approved. Another common conditional offer includes the satisfactory completion of building and pest inspections. If these conditions are not met, the buyer has a legal right to cancel the contract without consequences.
For purchasers, making a conditional offer means the contract absolutely has to go ahead if the conditions are met. There is no additional negotiation and you cannot withdraw your offer without paying a penalty. This means the onus is on you to ensure you have gone to all appropriate lengths to fulfil the contract conditions.
An unconditional offer is an outright offer to purchase a property. There are no conditions on the purchase, so if you are the buyer, you need to be 100% positive that this is the property for you and that you can secure the necessary funds required to follow through with the purchase.
While the legislation varies from state to state, an unconditional offer means that once the vendor has accepted it, it is final. The purchaser is legally obligated to complete the purchase or risk losing your deposit. In an auction environment, all offers are unconditional - you purchase the home according to the contract. An unconditional offer can of course be made outside of an auction format. This tends to be a bit more appealing to vendors because they know there is no reason for the purchaser to withdraw, and if the purchaser does back out, there are monetary consequences.
Generally speaking, for purchasers who present an unconditional offer, it is a good idea to include a time period for which that offer is valid.
Succeeding with a private treaty sale with LJ Hooker
For many people, buying a property via private treaty is a preferred alternative to an auction. While there is usually always a degree of stress involved in buying and selling a property, a private treaty sale allows for greater negotiation opportunities for vendors and purchasers.
For vendors, private treaties allow more time to consider offers from many prospective purchasers. For purchasers, there may be less stress involved because there is usually a cooling-off period and you are less likely to be adversely influenced by an auction environment. This means you won’t make offers that are wildly beyond what you can afford - it is a much more controlled purchase.
And when you need a hand to hold, our team at LJ Hooker is always here to assist you. We offer you experience alongside excellent market knowledge that helps make the buying or selling process as smooth as possible. As Australia’s number one real estate brand, a little help from the team at LJ Hooker can be invaluable when it comes to buying or selling your home. Speak to an agent or book an appraisal today.
- A price or price bracket is set by the vendor and then negotiations are held with prospective purchasers;
- The property is marketed by a real estate agent, including open for inspections, as well as digital and physical marketing collateral
- A private treaty can include a cooling-off period;
- As a buyer, tips for negotiating on price include doing your research, determining your top offer, putting every offer in writing and sticking to your guns as negotiations roll out;
- A conditional offer is one that is subject to certain conditions being met, such as the sale of another property or finance being approved
- An unconditional sale is an outright offer to purchase the property, with no conditions that could affect the sale.