Auctioning Commercial Property: Definitive Guide for Beginners

Selling commercial real estate isn’t easy, especially when you’re a beginner. Earning a hefty profit requires the ability to effectively market your investment property to a wide audience of interested buyers. Options when listing a commercial property for sale or investing in a new property include a traditional private sale or auction.  

Commercial property auctions come with pros and cons that can cloud the decision-making process. As a first-time buyer or seller, using this commercial auction guide as a reference should help ensure that all your objectives are met.  

Why Do Properties Go Up for Auction? 

Although it’s true that many distressed properties were auctioned off during the last real estate crisis, that's no longer the case. Many of today’s commercial property investors perceive auctions as an easy way to get a fair-market price as fast as possible. Most commercial properties that go up for auction are in exceptional condition, with some of them still holding tenants.  

How Do Commercial Real Estate Auctions Differ from Traditional Sales? 

With a traditional brokerage sale, a real estate agent will advertise your property and wait for buyers to show up. Interested parties will then look at your building or lot to see if it meets their specific needs.  

Several prospective buyers might tender you an offer through your agent to buy, which you can then accept, modify, or reject. Once an offer is accepted, you will close on the property. 

The closing usually takes place within 60 days after accepting an offer. During that waiting period, the buyer must complete their financing arrangements. Your property’s title deed is checked to ensure that it is clear, while the property itself may need to be inspected for any issues.   

An auction selling process is different from a traditional method. Instead of showing the property to interested parties and waiting for them to make an offer, an auction introduces a commercial building or plot of land to a group of interested buyers all at once.  

Buyers then bid on your property once the auction starts. The person or entity that puts in the highest bid by the end of the auction wins the property. Some auctioned properties have a minimum sale price (reserve) that buyers must meet.  

How Do Real Estate Auctions Work for Buyers? 

Auctioneers provide terms and conditions for participating in an auction. Unlike a traditional sale, many auction closing details are handled upfront, like the title review, collecting due diligence reports, and making escrow arrangements.  

Before the auction goes live, buyers can view specific details about the property and perform an on-site inspection to determine a fair market price. To bid, all potential investors must register and prequalify by providing proof of funds. 

Online commercial property auctions have additional requirements that must be met prior to the auction date. Serious bidders may be asked to sign confidentiality agreements, non-contingent purchase and sale agreements, and, in some cases, make a small deposit within 24 hours of their final bid. Non-refundable once the bidder wins, a “good faith” deposit is typically 10% of the purchase price.   

Top Reasons Why Buyers Like Buying Through Auction 

The advantages of buying an auctioned property include:  

• Transparency – When buying at an auction, you know exactly where you stand. You are either the top bidder or not. In traditional markets where sellers are experiencing multiple offers, buyers are somewhat left in the dark. 
• Level Playing Field – All interested buyers are participating under the same terms and conditions. No buyer has an advantage over another concerning financing, requesting inspections, home warranty, early possession, or all the other contingencies. Auctions eliminate the closed-door negotiations that can often leave some buyers at a disadvantage. 
• Control –Buyers get to decide when and at what level they participate in an auction. Rather than blindly participating against other offers, you control whether you are the winning bidder or not. 
• True price discovery – In any type of real estate, determining true market value isn’t always easy. When marketed effectively and open to all members of the public, an auction is an accurate form of price discovery. Buyers can feel comfortable they haven’t overpaid for a property when they know there were other people in the market, perhaps just one bid away. 

Selling Your Property at Auction 

Once you decide to sell a property through auction the process can usually start immediately. Because the buyers must have the funds on hand the day of the sale or shortly after, you don’t have to wait on them to secure financing. For the seller, the certainty of execution is a prime reason to auction a property versus doing a traditional sale. 

In addition to a faster transaction completion process, another key benefit of an auction for sellers is the fact that the auctioneer or broker can assist with marketing and sales outreach.  

Yet another upside of auctioning off your property is that prospective buyers may bid up the price even higher than you expected. Enthusiastic auctioneers can also create a lively atmosphere filled with a sense of urgency, encouraging buyers to bid above your target price.  

Types of Auctions 

When auctioning off a property, choosing the best format is also important. Here are the different types of commercial investment property auctions:  

• Absolute – Also known as a “no-reserve auction,” in an absolute auction the property is sold to the highest bidder with no minimum bid.  
• Reserve Auction – This type of auction requires a minimum bid, which may or may not be published. The seller also “reserves the right” to reject the highest bid if they decide that it’s unacceptable.  
• Live Auction – Typically moderated by a fast-talking auctioneer, live auctions take place at a specified place and time.  
• Online Only Auction – Increasingly popular due to Covid-19 restrictions, online commercial auctions require participants to register and place bids through the auction website.   
• Simulcast or Live Stream – This form of auction is a hybrid between live and online, giving the bidders the option to participate either way. As a buyer, you can attend in person or watch, listen, and bid from your computer or mobile device.  
• Sealed Bid – This type also eliminates the need to attend a live auction. Instead, a specified timeframe is provided for you to submit your bid to the auction company. As “sealed” bids, all bids are not publicly viewable until the auction is completed.   

Does It Make Sense to Auction Your Commercial Property? 

The answer to this question depends on your objectives. If your goal is setting your own timeline and attracting highly motivated buyers while eliminating the need to show the property multiple times, a commercial property auction is the right choice for you. 

Benefits & Risks of Buying a Commercial Property at Auction 

As was pointed out earlier, purchasing commercial real estate does provide you as the buyer with many advantages over a traditional sale.  

However, and much like any other type of investment, buying a commercial property at auction does present risks. The best way to minimize your exposure at future commercial property auctions is by working with an experienced commercial real estate broker.  

Once you’ve established a relationship with a reputable broker, they can help you seamlessly navigate through the auction “wilderness” so your new investment properties yield hefty profits for many years to come! 

Considering an Auction Sale? Millennium Properties Can Help 

As part of our Brokerage Services portfolio, Millennium Properties R/E offers live and sealed bid auction services for commercial property owners in Chicago. At Millennium Properties, our team uses both live and sealed-bid auctions to sell a wide variety of properties, from troubled assets to high-end properties and developer close-outs.  

We aggressively market and promote your auction property through digital ads, eblasts, social media, and other online tools to showcase your property and generate interest from investors and buyers. Contact Daniel Hyman at Millennium Properties today to learn more about the auction process or submit your property for our next auction.