Selling an Investment Property: Auction or Private Treaty?

Auction or private treaty? For landlords and investors, the best route is not always the one with the highest headline offer. This guide looks at buyer quality, commitment, timescale, holding costs, fees and likely net outcome.

Irfanali Shivji

10/5/20264 min read

When selling an investment property, the highest offer is not always the best outcome.

A strong sale is not just about the figure agreed at the start. You also need to consider who the buyer is, how committed they are, how long the transaction may take, what it will cost you to hold the property during that period and how likely the sale is to actually complete.

For landlords and investors, this becomes particularly important when selling a tenanted property, commercial unit, mixed-use building, land or part of a wider portfolio.

Both auction and private treaty can work well. The better option depends on the property and what you are trying to achieve.

Who is likely to buy the property?

Private treaty works particularly well where there is a broad market of conventional buyers and the property is straightforward to finance and sell.

Auction can become more relevant where the likely buyer is an investor, landlord, developer or someone using specialist finance.

This can matter with tenanted properties, commercial premises, land, development opportunities and unusual assets.

The objective should not simply be to generate as many enquiries as possible. The more important question is whether the property is reaching buyers who understand the asset and are genuinely capable of purchasing it.

How committed is the buyer?

An accepted offer can look strong on paper, but there may still be a long way to go.

A private treaty buyer could be relying on mortgage approval, another property sale, surveys or further negotiations before they are ready to proceed.

This does not mean private treaty buyers are unreliable. Many transactions complete perfectly well.

But an accepted offer is not the same as a completed sale.

With an auction route, the successful buyer will usually have to make a financial commitment through a reservation fee or deposit, depending on the method used. The terms and relevant property information are also made available as part of the process.

That can create a clearer level of commitment from the successful buyer.

What is the property actually worth to the market?

Private treaty normally involves negotiating with individual buyers as offers are received.

Where there is strong demand, this can sometimes make it difficult to know whether one particular offer represents the strongest position the market would have produced.

Auction approaches this differently.

A starting bid is used to generate interest, while an agreed reserve protects the seller's minimum position. Where several buyers are interested, competitive bidding can provide clearer evidence of what active buyers are prepared to pay.

That does not mean auction will automatically achieve a higher price.

It means that, in the right circumstances, it can create a more transparent process for testing demand.

How important is the timescale?

Speed should not be considered in isolation.

If waiting longer produces a genuinely stronger net outcome, waiting may make commercial sense.

But there is also a cost to keeping a property on the market.

That could include mortgage interest, service charges, insurance, maintenance, management costs, business rates or other professional costs.

There is also the opportunity cost of having capital tied up in an asset you have already decided to sell.

If that money is needed for another investment, debt reduction, retirement planning or another business purpose, a long and uncertain sales process can have a wider financial impact.

The relevant comparison is therefore not simply:

“Which route might achieve the highest sale price?”

It is:

“Which route is likely to produce the strongest overall outcome once time, costs and risk are taken into account?”

What about fees?

The fee structure can vary considerably between different private treaty and auction arrangements.

For this reason, comparing the headline fee alone is not particularly useful.

A seller should understand the likely total cost of each route and how that affects the expected net proceeds.

For example, a slightly higher sale price may not necessarily leave you better off if it comes with a much longer holding period, additional costs or a greater risk of the transaction collapsing.

Equally, auction should not be selected simply because a particular fee arrangement looks attractive.

Suitability should come first.

What if the property is tenanted?

A tenanted investment property does not necessarily need to be sold with vacant possession.

In many cases, it can be marketed directly to landlords and investors who are interested in the existing rental income.

The important point is that the buyer understands exactly what they are purchasing.

That means presenting the tenancy, rental position and relevant property information clearly.

For the right investment property, keeping a good tenant in place may actually form part of the investment case rather than being something that needs to be removed before sale.

What about commercial property, land and mixed-use assets?

These properties often require a more targeted approach.

A commercial unit, mixed-use building, development site or piece of land may appeal to a very different buyer audience from a conventional residential property.

The marketing needs to communicate the commercial or development opportunity properly.

In some cases, auction can help bring relevant buyers into one structured process and create competition around an asset that does not naturally fit a standard residential sale.

Again, it comes back to suitability rather than assuming one route is always better.

Selling more than one property

Portfolio landlords have another decision to make.

Do you sell the whole portfolio to one buyer, sell selected properties individually, or create smaller groups of assets?

Selling everything together may appear simpler, but it could mean accepting a portfolio discount.

Selling properties individually may create access to a wider buyer market, although it can also involve more transactions to manage.

Auction can potentially allow properties to be offered individually, in selected groups or as a portfolio.

The right structure depends on the properties, existing tenancies, buyer demand and your wider financial objectives.

So, auction or private treaty?

There is no universal answer.

Private treaty can be the right route for many investment properties.

Auction can be a strong alternative where the property would benefit from a more targeted buyer audience, competitive bidding, greater buyer commitment or a defined sales process.

The starting point should always be the commercial objective.

Before deciding how to sell, consider who the likely buyers are, the pricing or reserve position, expected timescale, total costs, holding costs and the likely net outcome.

The sale method should fit the asset and your wider plans, rather than the other way around.