Listing a commercial real estate property with an agent and waiting for a bid is one way to sell a property. Prospective buyers examine the property, make an offer based on the seller’s listed price, and negotiations begin. The process can take months or even years. But some property owners prefer a quicker sale and opt to sell by auction instead of a traditional brokerage sale. Auctions are able to move properties quickly even when the overall real estate market is very sluggish. Property owners who are considering a commercial land auction should know what to expect.
First of all, a commercial real estate auction can take place in one of three different formats. An online auction is similar to eBay in that buyers make bids from their computers during a limited time range, and they have to meet minimum bids established by commercial auctioneers. An open outcry auction is a live auction where buyers are physically present in one location (or via webcast). A sealed bid auction is effective when there is a limited number of buyers. Each one submits a bid without knowing what other buyers are bidding.
An advantage of an auction is that the seller sets all the terms of the sale. The seller determines the length of the auction, which is typically six to eight weeks. He or she also determines the financing, the structure of the offering, and the terms of the contract. The property is always sold as-is and where-is, and closing takes place within one month to a month and a half of the signing.
Also, sellers should be aware that they will pay higher fees to commercial auctioneers than to traditional real estate agents. The reason for this is that the marketing for an auction is much more intensive in order to bring about the sale in a short time. The cost of the marketing campaign can be anywhere from 0.5% to 1.5% of the value of the commercial property for auction. Multiple sellers with small properties may be combined into a single auction, with all sellers sharing the marketing costs.
Due diligence is prepared by commercial property auctioneers in advance of the sale. The due diligence package contains up to 500 pages of detailed information about the property, disclosing both positive and negative features.
Sellers have a few options to control the price of the sale. They can suggest a starting bid or publish a minimum price that is considerably lower than what they hope to gain in order to motivate high bids. However, sellers are committed to selling at the minimum bid if they receive nothing higher. Also, sellers do not have to stipulate a minimum bid and can simply accept the highest bid at the end of the auction.