By Douglas P. Johnson
There are many myths about selling commercial real estate at auction. These myths may include the notion that auctions are only
used to sell low value junk properties or that auctions are liquidation programs of last resort and they do not maximize the value of
Auctions are used around the world to sell the most expensive art,
jewelry, furniture and other high cost items. As is the case with fine
art owners, commercial real estate owners in the U.S. are discovering that that the auction process for the sale of quality real estate will
maximize the value of their property on their terms.
However, one of the most common questions asked by owners
is: When is a property a good auction candidate? The answer can
become complicated; however, it is generally as simple as determining if the seller wishes to maximize the value of his or her property
with speed and certainty. The desire to sell a property with speed
and certainty in an accelerated marketing process “auction” can be
for many reasons; high cost of asset carry, certainty of sale by end
of quarter/year, stale current marketing efforts, rebounding from the
buzz of an auction; or the seller wants to control the terms of sale. To
better understand why these factors are important, let's define them
Speed: Seller’s can be assured they will sell their property within
eight weeks from the date the Broker/Auctioneer is engaged to sell
Certainty: Buyers must submit non-refundable earnest money
totaling 10 percent of the Purchase Price. Properties are sold “as-is,
where-is” with no contingencies with a closing that will occur within
10 to 45 days from the date of Seller’s acceptance of the offer.
Maximization of Value: Properly conducted real estate auctions
are high powered marketing programs that aggressively target buyer
groups through print and website advertising, direct mail and email
blasts, public relations, web search optimization strategies, personal
outreach to prospective buyers, and other marketing techniques.
There are Many Different Auction Forums and
Online Auction: Also referred to as a timed auction, similar to
an e-Bay auction. Bidders bid electronically from their computer.
Bidders must bid the minimum bid increment requested by the
online auctioneer. The high bidder at the conclusion of the auction
is the winner.
Open Outcry/Webcast: An open outcry webcast auction allows
bidders to bid in person at the auction location. The webcast feature
of the open outcry auction allows the bidders to see and hear the
auctioneer and bid online from their computer.
Sealed Bid/Convertible: Allows bidders to bid by filling out the
Purchase and Sale Agreement and send it to the auctioneer with the
required earnest money deposit prior to the bid deadline. Seller may
have the option to convert the offering to an open outcry or online
auction after the review of the sealed bids.
Auction Methodologies: Absolute; Minimum Bid;
or With Reserve
Absolute Auction: Requires the seller to sell the property to the
highest bidder regardless of price.