Real Estate Auction Fees: Understanding Them for Both Parties

Property auctions are one of the easiest and most efficient ways to buy and sell all types of commercial investment properties. Before you participate in an auction, it’s essential to understand how auction fees – often called auction commission or auction charges – are applied. As a potential seller or investor, this commercial property auction fees guide contains all the information you’ll need to make a better-informed decision.  

Selling at Auction vs. a Private Sale 

With a traditional private sale, a real estate agent will advertise your property and wait for buyers to show up. Interested parties will then look at your property 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 auction selling process is more streamlined. 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 Much Does It Cost to Sell a Commercial Property at Auction? 

If you’ve sold a vehicle through a car auction before, real estate auction house fees work a little differently. Basically, auctioneers receive a commission (a certain percentage of the sale price, typically between 1.5% and 2.0%) and an entry fee (usually between $300 and $750). Agreed upon prior to the auction, the commission and fees are listed in the auction contract.  

If you are wondering “why are auction fees so high?” that’s a great question. Real estate auctioneers charge what they do because they are responsible for sale property-related expenses beyond what it costs to hold an auction, such as marketing, online bidding fees, and credit card bills.  

As the seller, you can expect to pay roughly the same amount when selling vacant land or a commercial building through an auction house. That said, now it’s time to explore in more detail who pays the other auction fees – the buyer or seller.  

Fees for Buying a Property at Auction 

There are also property auction fees for buyers. As a potential investor, these are some key questions to include on your buying property at auction checklist: 

What happens if I’m the winning bidder on the day? 

If you are the winning bidder, you will need to pay a deposit on the day of the auction (usually 10% of the sale price), sign the Purchase and Sales Agreement, and ensure that funds are in place to complete the sale before the closing date (usually 30 to 45 days after the auction).   

What is a Buyer’s Premium? 

Some commercial property auctioneers require a surcharge on top of the sale price paid by the buyer. This Buyer’s Premium is often used to offset costs such as credit card and online bidding fees.   

What is an Administration Fee? 

An Administration Fee covers the auctioneer’s cost in servicing the requirements of all those interested in purchasing the property. 

How much is the Bid Deposit? 

Every auctioned-off commercial property requires a non-refundable deposit that the winning bidder must pay. Most properties sold at auction have a Bid Deposit of 10%, although some have a fixed Bid Deposit amount.  

What are disbursements? 

Disbursements is the term given to any additional charges incurred by the purchaser as dictated by the sales contract. These may include the cost of searches, legal fees, other documentation, and supplements. Disbursements become payable on completion of the Purchase and Sales Agreement. 

What is a Reservation Fee?  

This term refers to the fee to process an application to the point of a Determination. A Reservation Fee is typically equal to 8% of tax credits requested for for‐profit developers and 6% for non‐profit developers. 

What payment methods do you accept? 

Most commercial property auction houses accept cash, banker’s drafts, or cashier's checks for payment. 

If I buy a property, what do I need to pay and when? 

If yours was the winning bid, you will need to pay a deposit (Usually 10% of the sale price) on the auction day and secure the remainder of the funds before the closing date (Usually within 30 to 45 days). 

If I pay via banker’s draft, how much should I make it out for?  

The banker’s draft should be made out in advance for 10% of your maximum bid price. Also, be sure to have other forms of payment available on the auction date to pay any additional fees and expenses that may pop up. 

When do I pay my deposit? 

Usually equal to 10% of the winning bid, your deposit is due the day of the auction.  

Fees for Selling a Property at Auction 

These are the main expenses you might incur as the property seller: 

  • Solicitor Fees - A solicitor (usually an attorney) provides expert advice on the content of the legal pack before the auction. Solicitor's fees are generally between 0.5% to 1.25% of the value of the transaction. This fee can also be negotiated, depending upon the circumstances of the acquisition.  
  • Estate Agent Fees - Most commercial real estate agents earn anywhere from 4% to 10% depending on the size of the transaction, the rate negotiated by those involved, and whether they were the procuring cause of the sale or getting an override as the agent responsible for the listing. 
  • Capital Gains Tax - Much like income taxes, your capital gains tax rates will vary depending on the individual taxpayer's income throughout the year in which they sell a property. Long-term capital gains are currently taxed at the rate of 0%, 15%, or 20%, depending on a combination of your marital status and taxable income. 
  • Transfer Taxes - Most states levy a transfer tax for each real estate transaction. And some counties and cities add their variation to the state transfer tax. Before selling a commercial property, the seller should check with the state and county for a tax estimate. The tax is usually due at the time of closing. 
  • Removal Costs – These may include the cost of removing equipment and furniture from the property, along with any temporary storage expenses.  

Considering an Auction Sale? Millennium Properties R/E 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 throughout the Chicagoland area.  

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.  

Anne Barer

About Ro Crawford

Ro has extensive background in several sectors of the Real Estate industry including residential and commercial assets. Ro is responsible for developing a comprehensive marketing plan for each property as well as managing the company’s social media accounts. She designs, writes and edits offering memorandums, press releases, proposals for new business, eblasts and more. For questions, comments, or suggestions related to our blog, you can contact us via our website.