Private treaty: What is a private treaty sale?

A private treaty sale is one of the main ways that properties change hands in Australia. If you’re in the market for a house or apartment and wondering how this kind of sale works, here are some things to know.  

If you frequently browse real estate listings, you may see phrases like ‘for sale by auction’ or ‘for sale by private treaty’ come up quite commonly. Auctions are a widely-known method of selling houses in Australia, but if you don’t find the idea of showing up on auction day and bidding on a property to be appealing, a private treaty sale may be the preferable option for you.

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What is a private treaty sale?

A private treaty sale is when a property is advertised for sale by the owner, generally either at a set price, with price range, or with advice that the owner is willing to consider offers over a certain amount. Prospective buyers can make an offer on the property, and the seller may then accept one of these offers, or enter into negotiations with a buyer or buyers for a sale price they find appealing.

Typically, a real estate agent will help facilitate this process, accepting offers from prospective buyers, and helping the seller negotiate. A buyer may also engage the services of a buyer’s agent to help with the process of a private treaty sale.

How does a private treaty sale work?

Generally speaking, there are a number of key steps in a private treaty sale:

1. The seller puts the property on the market, usually either with a price or a price range
2. Prospective buyers inspect the property and conduct research into it
3. A buyer or buyers make offers on the property
4. The seller considers the offer or offers, and either accepts one, or negotiates until a price is reached with a buyer
5. The process of exchanging contracts between the seller and the buyer begins, typically involving real estate agents and solicitors
6. Any contract conditions, such as building and pest inspections, valuations or obtaining finance, are undertaken
7. The contract goes unconditional, and the buyer pays a deposit, at which point the cooling off period begins
8. Settlement day arrives, the funds for the purchase are exchanged and the buyer is given the keys to the property

How is a private treaty sale different from an auction?

There are a number of key differences between a private treaty sale and a sale by auction. When a property is sold by auction, then typically, a reserve price will be set – this is the minimum amount that the seller is willing to accept. On auction day, bidders will then compete, until the property is either passed in (meaning the top bid is below the reserve price), or sold to the highest bidder. By contrast, a property for sale by private treaty will be advertised with a specific price or a price range, with prospective buyers then free to make offers.

One key difference is that a private treaty sale is less transparent than an auction – the seller or agent may choose to comment on the general range of offers received for a property, but as a buyer, you will not know exactly how much rival buyers have offered. Another key difference is that when a house is sold at auction, the highest bidder is committed to the purchase of a property once the hammer falls, and there is no cooling off period or scope to negotiate purchase conditions, as there is with a private treaty sale.

What are the rules for private treaty sale in each state?

Each state and territory in Australia has slightly different rules around private treaty sales, with most of the differences coming down to the cooling-off period and the fees that must be paid should the buyer decide to back out of the contract. The rules state by state are:

• Australian Capital Territory: The cooling-off period is five business days from the day when both seller and buyer sign the contract. The seller may impose a fee of 0.25% of the purchase price if the contract is terminated during this period.
• New South Wales: The cooling-off period is five business days from the day when both seller and buyer sign the contract. The seller may impose a fee of 0.25% of the purchase price if the contract is terminated during this period.
• Northern Territory: The cooling-off period is four business days from the exchange of contracts. No forfeiture fees apply if the contract is terminated during this period.
• Victoria: The cooling-off period is three business days from when the buyer signs the sale contract. The buyer will be entitled to a full refund of any money paid, less $100 or 0.2 per cent of the purchase price, whichever is greater.
• Queensland: The cooling-off period is five business days from the day when both seller and buyer sign the contract. The seller may impose a fee of 0.25% of the purchase price if the contract is terminated during this period.
• South Australia: The cooling-off period is two business days from when the buyer and seller sign the contract or when the buyer receives the vendor’s statement. If the contract is terminated in this time, any deposit over $100 must be refunded in full, while any holding deposits will go to the seller.
• Tasmania: There are no mandatory cooling-off periods in Tasmania. A conveyancer or solicitor may draft one into the contracts, and both parties will need to agree.
• Western Australia: There are no mandatory cooling-off periods in WA. A conveyancer or solicitor may draft one into the contracts, and both parties will need to agree.

Do you need preapproval to buy a property by private treaty?

If you are in the market to purchase a property, and you plan on making an offer on a house or apartment, then you are not required to have pre-approved finance to do so. From a buyer’s point of view, however, having your finance pre-approved, however, can be advantageous for a number of key reasons:

• Having pre-approved finance can let a seller know you are serious about making an offer on a property, and that you already have the conditional approval of a bank or lender, which could mean they are likely to see you as a safer option than someone without conditional approval.
• Having pre-approved finance can potentially give you an edge over other buyers who are offering in the same range, as it will take you less time to have your bank or lender give the final sign-off. This may mean you can offer a shorter time frame for finance approval before the contract goes unconditional. That said, it is a good idea to speak to your lender and your solicitor before shortening the condition in your contractual offer.
• Having pre-approved finance can allow you to shop for a property with greater confidence and seek out properties within a certain pre-defined price range, with a fairly clear idea of the maximum price you can afford. This may maye the house-hunting prices easier which may make the house-hunting process easier.

It is important to know, though, that having your finance pre-approved by a lender does not guarantee that they will loan you that amount for a particular property purchase. They will want to conduct checks of their own, including obtaining a valuation of the property, before giving final sign-off.

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