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.