So it is the prime time season for television, and this show comes on and you are enamored about them buying and selling a house at auction. You see folks buy, flip and sell for enormous profit. You look around your home and think – I would auction my house off, but I am afraid I will lose money on it.
You might have heard about the growing trend of buying and selling real estate in online auctions. At a time when sellers need an effective method of transacting asset sales, whether distressed or non-distressed, Auction.com has attracted millions of web visitors searching for properties. Here’s why marketplaces like Auction.com are a good idea if you’re looking to sell a commercial property.
1. Auctions ensure that your property will sell at true market pricing.
An auction is the best and most efficient way to achieve true market pricing, for two reasons. All buyers are given an opportunity to participate and all buyers are treated equally.
Your potential buyers bid in a competitive environment. After each bid is placed, other bidders have at least 2 minutes to determine if they want to continue participating. Technically an auction can continue indefinitely if bidders keep bidding. Once the clock expires, the winning bid reflects the highest and best price that the market will bear. It’s the buyer’s true “best and final” offer.
Because you set the reserve price—the minimum amount for which you’re willing to sell your property—you’ll never have to sell at a price you won’t like. (In 2013, properties sold at an average of 109% of the asking price.)
2. Only qualified bidders participate on auction day.
Any platform you utilize, such as live or online bidding, requires bidders to complete their due diligence and show proof of funds prior to auction day, resulting in higher-quality bidders and a more-certain close. But this doesn’t limit the buyer pool: our finance partners review our auction portfolios and offer financing for some assets.
We also allow sellers and brokers to bring financing alternatives to the auction, which more and more lenders are willing to do as they become familiar with our process. If your asset does have a financing alternative, such as seller financing or third-party financing, we market this benefit to potential buyers.
3. Transparency and a level playing field encourage buyer participation.
Auctions create a level playing field for transacting real estate. There are no secret handshakes or back-door deals. All of the terms and conditions for acquiring the property are disclosed upfront and made available to all of the auction participants. The only differentiator will be the ultimate price paid by the winning bidder. This transparency gives qualified buyers confidence that they are competing solely on price and no other “non-controllable” variables. In addition, buyers feel comfortable that they did not overpay for the asset because there was someone “one click” beneath them.
4. Auctions work best for stabilized and opportunistic properties in desirable markets, despite the misconception that auctions are only for distressed properties.
Basically, properties that achieve the highest price over reserve are the properties that people want most. These properties repeatedly attract more buyers, creating a more competitive environment on auction day, and resulting in better execution and higher pricing.
5. In an auction, the likelihood of a transaction closing is nearly 100% – it’s one of the most effective ways to close on commercial real estate.
Traditional transactions have several friction points that can crater a deal after a buyer has been selected. These friction points typically occur during negotiation of the purchase contract and the subsequent due diligence period. Should the buyer decide not to perform, the purchase price can be severely affected.
The auction process removes these friction points. In a standard auctions, buyers perform their due diligence and receive the purchase contract before the auction. As a result, bidders are prepared to “click to win.” A non-refundable deposit is immediately collected from the winning bidder and the purchase contract is signed without ongoing negotiations the evening of the auction.
Auctioneers do provide “custom” auctions that allow for potential contingencies, depending on asset size and complexity. Sellers can work with an auction advisor on the best approach to maximize the value of their assets.