Commercial Real Estate Auctions: What to Know
- Choose from live or online auctions.
- Reserve auctions have a minimum selling price; absolute auctions don’t.
- Sealed-bid auctions require participants to place bids without knowledge of competing bids.
- Some auctions allow bidders tour properties ahead of time.
- A standing line of credit is one way to finance an auctioned property.
Investors seeking to purchase commercial real estate can take advantage of live or online auctions.Live auctions require you to show up to a predetermined venue to place bids for a property in person. Live auctions require you to place bids against other bidders in real time. Live auctions for individual items or properties often last a matter of minutes.
Online auctions are increasingly common in a post-eBay world, and that includes commercial real estate properties. Online auctions, unlike their live counterparts, last for a predetermined amount of time, generally about a week, with buyers able to place bids up until the auction closes.
Bidders should also be aware of the main types of auctions.
- Reserve auctions. With a reserve auction, the seller can designate a minimum bid amount, which may or may not be disclosed to bidders ahead of the auction. If the winning bid doesn’t meet the seller’s minimum, then they don’t have to sell the property.
- Absolute auctions. Also known as no-reserve auctions, absolute auctions have no minimum bid amount — the property being auctioned off simply goes to the highest bidder.
- Sealed-bid auctions. In a sealed-bid auction, also known as a blind auction, participants submit their bids without knowing how much anyone else is bidding.
Tour the property
Though residential auctions often preclude bidders from inspecting a property before bidding on it, this is typically not the case in commercial real estate auctions. In an effort to attract as many bidders as possible, the owners of the property usually provide bidders with all the information they need to make an informed decision when bidding, and may even set aside designated times for bidders to tour the property in person ahead of the auction.
Also keep in mind that the perception that the commercial properties available at auctions have something wrong with them isn’t necessarily true. For many owners of commercial properties, auctions are merely a method of achieving a quick sale at a (hopefully) great price. Regardless, if given the opportunity to tour a property before bidding, be sure to take advantage of it.
If you win an auction for a commercial real estate property, most auctions require payment within 30 days. This typically precludes conventional financing as an option.
That means you’ll either need to have cash on hand for the purchase, or have financing that you can access immediately, such as a line of credit. Most auction houses also require you to provide an earnest money deposit to show that you have the money necessary to back up a winning bid. Most auction houses require the deposit to be in the form of cash or a certified or cashier’s check.