How Auctions are Favorable in Successfully Closing CRE Deals
The increased popularity of commercial real estate (CRE) auction sales across the U.S. has further proved why this process is beneficial for commercial buyers. While auctions took time to develop, due to the technology that is required to speed up these deals, buyers have begun to note their efficiencies for transactions. Not only do auctions accelerate the various steps that make up the transaction, but they also ensure the best market price possible.
Auction Walkthrough
Evolution of Auctions
After the collapse of the housing market in 2008, banks and financial institutions faced unprecedented rates of foreclosures and loan defaults. This is especially true for residential and commercial properties. As many property owners defaulted on loans, banks found themselves holding an increased number of distressed CRE properties. Traditional methods of selling these assets were too slow for the urgency of the financial climate. Auctions provided an effective and accelerated method for banks to liquidate these assets. This newfound popularity led to a surge in auctioned properties, including both residential and commercial facilities.
In the years following the recession, properties going to auction skyrocketed. Many of these properties were distressed, meaning they were already in foreclosure or close to that step. Buyers began to see value in auctions as they could acquire properties at lower prices and shorter turnaround times. These benefits created a competitive environment where buyers were more willing to participate, further driving the popularity of auctions. Auctions began to grow as a common method for selling all types of CRE facilities.
Market Transition: From Crisis to Norm
Today, auctions are used for a wide variety of properties, including high-value and stabilized assets. The auction process is most beneficial for its speed. In a typical CRE auction, properties are marketed for a brief period of around 30 to 45 days. Then the process is followed by a quick sale and a 30-day escrow period to close the deal.
The 30-day escrow period in auctions differs from traditional CRE sales, which can involve months of negotiation and due diligence. The efficiency of the quick turnaround made auctions appealing in the post-recession environment, where quick liquidity was essential.
Auctions provide a transparent process where all bidders can see the current bid and have a fair chance to participate. This transparency built trust in the auction process and shifted perceptions, making it an accepted method for high-value transactions. Auction platforms leverage targeted marketing campaigns, digital outreach, and online bidding, which allows for greater exposure.
Absolute auctions and reserve auctions are the two types of auctions that are used most often. In an absolute auction, the property is sold to the highest bidder, and it is advantageous as it can lead to a sale price that is greater than market norms. These are beneficial to sellers that are motivated to sell quickly. With reserve auctions, the seller sets a minimum price that is the lowest price they will accept for the property. This kind of auction gives the seller control in the final sale price, and also ensures the property won’t be sold for less than its value.
Also, auction platforms have embraced technology, allowing properties to be marketed globally. Online bidding platforms became more well-developed, which enabled bidders to participate from anywhere in the world. This global reach expands the buyer pool for properties, and it also increases competition.
The Broker’s Perspective: How Brokers Support Sellers and Buyers in CRE Auctions
In the CRE auction process, brokers play a dual role, providing essential support to both sellers and buyers. Their expertise ensures a smooth, efficient, and successful auction experience for all parties involved.
How Brokers Aid Sellers
Brokers begin by helping sellers establish a competitive auction strategy. They perform a thorough valuation by taking into account local market trends, comparable sales, and the unique traits of the property. All of these factors help create a marketing strategy, which then sets the property up for maximum exposure.
In order to reach a broad pool of potential buyers, brokers leverage auction platforms and targeted marketing campaigns. By utilizing online listings, email campaigns, and network outreach, brokers ensure that the property attracts interest from qualified, motivated bidders. Brokers are also involved in managing the marketing timeline, in order to align it with the auction date to build anticipation and engagement.
The broker team guides sellers through the auction’s timeline and logistics, handling all communication with interested parties and ensuring the auction stays on schedule. They provide real-time updates to sellers on bidder interest and engagement, helping sellers make informed decisions throughout the transaction process.
By streamlining the auction setup and leveraging marketing networks, brokers help sellers achieve a faster and more efficient sale.
How Brokers Collaborate with Buyers
Brokers work with buyers to pinpoint properties that align with their investment goals. Depending on the property type the buyer is interested in, brokers use their market knowledge to locate properties that match the buyer’s criteria and budget. Once a potential property is selected, brokers assist buyers with the due diligence process. They will send buyers all the due diligence that has already been gathered and put it together in a due diligence folder on the auction listing page. This process enables buyers to make educated bids and reduce the risk of post-auction issues.
During the auction, brokers monitor bidding activity and guide buyers on when and how much to bid, based on real-time auction dynamics. Brokers also help buyers develop competitive bidding strategies that maximize their chance of winning while staying within budget.
After a successful bid, brokers manage the closing process by coordinating with escrow services, title companies, and other stakeholders to meet auction closing requirements. This oversight helps buyers close on properties quickly and efficiently, often within the standard 30-day escrow period.
Overall, brokers add value for both sellers and buyers by streamlining the auction process, providing expert market insights, and ensuring timely and effective communication. Their involvement facilitates a successful auction outcome. This creates a win-win situation for sellers looking for a fast sale and buyers seeking valuable assets.
Why CRE Auctions are a Smart Choice for Buyers
The CRE auction process brings speed, certainty, and transparency to the table. These are three factors that often lack in a traditional sale. For buyers, auctions provide a unique opportunity to quickly secure properties at fair market value and with reduced transaction complexity. With the support of knowledgeable brokers, buyers can navigate the auction process confidently, benefiting from accelerated timelines, competitive pricing, and access to a wide range of properties.
CRE auctions present a compelling alternative for buyers seeking efficient and cost-effective ways to expand their portfolios. In a market where time is money, auctions offer an unparalleled approach that delivers both speed and value, reshaping how buyers approach the CRE landscape.
