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What are the Reasons to Auction Property Online?

Updated: Jul 2

Auctioning commercial real estate has long existed as a viable format to dispose of assets. It historically was reserved for less favorable acquisitions or hush-hush foreclosures/note sales. Today, the pandemic has accelerated technology adoption and the landscape has shifted: online auctions are quickly becoming a favorite of brokers and sellers as a viable method to successfully market and dispose of highly viable properties at the above reserve.

Operate with a certainty of deal close.

A canceled escrow is the bane of every broker’s existence; auctions can provide sellers with a certainty of execution. If you’ve experienced challenges in the final stages of the closing process, especially if you need to close by a specific date, an auction provides a promising alternative route.

Auctions produce non-contingent, all-cash, and 30-day close offers from qualified buyers. When a property enters escrow from auction, the likelihood of closing jumps to a reassuring 99%. If the buyer fails to close, which is rare, they forfeit a non-refundable deposit, typically 10% of the starting bid amount, that goes directly to the seller.

Fast closing helps manage seller deal fatigue.

Sometimes, there’s nothing a seller wants more than to dispose of a property, even long before it goes to market. When owners find themselves in the sales hot seat, the focus shifts from the disposition process to results.

If a successful execution is all that matters, an absolute auction – where the bid begins at $1 and goes until the countdown ceases – all but guarantees a deal close. The seller can accept whatever the highest offer comes through.

Auctions offer a new strategy when a traditional listing doesn’t work.

When a listing lives on the market for a long time, it conveys a message to buyers that the seller doesn’t intend to strike a deal. Whether a property is overpriced, has problems, or the seller is disinterested in negotiation, overcoming those marketing optics can be a challenge.

An auction event conveys to potential buyers that a seller is committed to selling within the framework of auction terms. This commitment conveys to buyers that a seller will meet the market’s determined value and that they’re willing to trade the asset on clear terms: a win-win that motivates the transaction. If a qualified bidder makes an acceptable bid during the event, the seller will sell.

Auctions help navigate the challenges of unique, non-traditional listings.

Not every property fits neatly into a traditional asset class, and unique properties sometimes require unique disposition strategies. Auctions help to minimize the inherent complexities of these deals by cutting down on the back-and-forth, saving hours.

When marketing a property on auction, all due diligence paperwork is posted and protected with a confidentiality agreement, allowing bidders to do their homework before bidding. Once the bidding starts, buyers can confidently make offers on the property, allowing the seller to receive the highest non-contingent offer without all the mess of a contingent-filled escrow that the traditional transaction process can have.

Special Servicer Deals, REO, or Foreclosure properties benefit from the auction format.

As the natural debt life cycle creates more inventory in the commercial real estate market, special servicers need efficient tools to transact on large portfolios with minimal hassle. Auctions, with non-contingent execution, offer a scalable method of disposition for these groups to close large portfolios in a short period effectively.

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