The Truth About CRE Auctions

March 27, 2017

What really happens at commercial real estate auctions?

You may have heard they’re risky or rigged, but when it comes to buying and selling real estate investment properties via auction, there’s more to keep in mind than the myths. Here’s the real deal on CRE auctions:

Many investors worry that, if a commercial property is up for auction, there must be something wrong with it. And, while this may have been an assumption that proved true during the housing crisis, the market is stronger now than it was then. Rather than being a last resort, auctions have become an acceptable business choice and the majority of commercial auctions feature facilities that are fine. The risk of finding a space in disrepair goes down even more if tenants have been consistently present.

What’s more, investors often fear that they won’t have access to the space before bidding, so they won’t know how bad things are until they’re stuck with the property. This simply isn’t the case with a commercial auction, because this type of sale is the owner’s choice. They usually want to attract as many potential buyers as possible to secure a quick and favorably priced sale, so they’ll provide the information necessary for due diligence.

When it comes to due diligence, investors want to know that the “i”s are dotted and the “t”s are crossed. That’s why shrewd investors work with professional commercial real estate auctioneers and an experienced legal team. Rather than worrying about scams or hidden costs, they’ll have confidence knowing the information about liens, back taxes or any other legal hang-ups will be disclosed.

It is expected that bidders prove their investment intention and have the available funds for purchase, but professional CRE auctions shouldn’t involve a pay-to-play scenario. Other hazards like owners using ghost bidders or underhanded tactics to drive up pricing are rarely encountered due to the close oversight and strict regulation of commercial real estate transactions. Auction houses would suffer greatly if these tactics were detected and, with a tarnished reputation, would falter. Thus, it’s in everyone’s best interest to conduct a transparent sale.

If you want to know more about CRE auctions, how they could work for your assets or how to capitalize on an opportunity in your market, talk to Intelica CRE. We can further explain the process, acquaint you with reputable auction resources and help you navigate the transaction to ensure a positive outcome.