What are the advantages of a private treaty sale?
There are three price strategies and each has their benefits and limitations.
This is the original and most widely understood by buyers and sellers and is the oldest form of pricing. An asking price of a typical property worth $800,000 might be $830,000 or $840,000 and the property would be promoted in every advertisement with that price. Buyers would assume that that is the price that the owner would like to get but also assume that there is room for negotiation and will make offers below that with the expectation that the owner will come back to them with a counter offer.
Buyers like it because they know how much the owner wants, Sellers like it because it puts out there what they want to get.
The issues with it is that often if the price is high, buyers see the price first before they look at the property and dismiss the property before inspecting. Buyer response is usually an offer or silence. Price reviews need to be conducted every 2-3 weeks and price adjustments need to be roughly 3% to have an effect on interest levels and inspection numbers.
This approach to pricing started far more recently in an attempt to avoid having to do price adjustment and to attract better interest. Using our typical property again that was worth $800,000, it may be advertised as offers over $760,000. The idea is that two identical properties, one advertised with an asking price of $840,000 and another with an offers over of $760,000, the more attractively priced property would get all the interest and inspections and get more motivated offers.
Buyers like it because it’s more attractive and has a ‘got to look at this one’ price, Sellers like it because it gets better inspections and reduces the need to review the asking price.
The issues are that sellers can find that while buyers will generally come up to market value eg $800,000, it difficult to lift the offers up above a few thousand dollars extra. They also often feel that the offers over the starting price are too low, many compensate by using higher offers over figures such as ‘offers over $820,000’ for example. This tends to reduce interest and the results. They can also find they end up back with having to review their advertised price until they get traction with the market.
This strategy is probably the most recent and we have found when used in a structured disciplined manner that the results are better than offers over and asking prices. Using our example again, a price range for an $800,000 house would typically be $760,000 to $830,000. A price range uses both an asking price and an offers over. Because both figures are used both figures can do what they were intended to do. The top figure is a figure that the owner would look at negotiating from and the bottom figure is a figure that the buyers can’t resist looking at.
Buyers like it because it’s clearly defines what the owner wants while making it attractive to inspect, Sellers like it for exactly the same reason.
The issues are that the price range must be set around the correct value. Price ranges that are set to high still won’t work. Agents also must be skilled in negotiation and in how they answer questions about what the owner wants and what other interest there is in the property. Done correctly, buyers will focus on what they fear other buyers might pay. We have managed this process when real estate valuers (who are some of the toughest to negotiate with) have been acting on behalf of the buyers. The results have been far higher than sales by other methods.