A decade ago, the idea of a commercial real estate auction often evoked negative feelings from buyers, sellers, and brokers.
For buyers, it meant investing in a potentially distressed asset. For sellers, it meant a last-ditch attempt to offload an underperforming property. And for brokers, it meant being left out of the sales process and without a commission.
But today, that perception has changed. Now CRE online auctions can offer investors a rich virtual experience where they can compete for opportunities across the country without having to leave the comfort of their office or home. Sellers choose auctions because it allows them to maximize pricing by creating a competitive environment of buyers with real-time visibility during the entire marketing and live bidding process - and at the end of it, knowing that there’s a date certain for a sale with a real qualified buyer who will close the deal. As a broker, leveraging an auction can mean potentially earning a higher commission and expanding their business into markets outside of their core domains, which ultimately allows them to better serve their clients.
It’s a win-win-win.
But how do they work, and what can you do to increase your success with a CRE online auction? Here’s what you need to know.
Traditional auctions that were once strictly held in person have evolved into the online space allowing buyers and sellers to participate in the live bidding process from anywhere with internet service. This shift has created an efficient, cost-effective, and convenient way to buy and sell commercial real estate. Buyers can virtually tour properties from anywhere and then underwrite and place a bid with a single click.
A CRE online auction typically starts with a seller and their broker working with auction specialists to set a reserve price and choosing an auction format that is appropriate for the subject asset and best suited to the seller’s needs.
Once a seller and their broker select the auction format, it is placed into an auction event that is published on the asset’s webpage for all interested buyers to view. Auction events begin with the broker marketing the asset for typically 45-50 days while buyers conduct all due diligence upfront during this marketing period before the bidding window goes live. General information about each property is published on the auction site and available to anyone who visits the site, whether they are registered to bid yet. This includes a basic property overview, investment highlights, contact information for the listing broker(s), as well as auction details, like the minimum bid amount and the dates the auction will start and end. Buyers can access the full property and due diligence materials by executing an online confidentiality agreement and registering to bid by completing a simple form and uploading proof of funds, showing their liquidity up to the amount they would like to bid.
After the bidding window opens, buyers compete by submitting live bids, all of which are displayed in real-time for anyone to see throughout the timed event, typically lasting two days. When the reserve price is met, bidders are notified on the screen. The winning bidder is required to execute the sale contract within 2 hours of the auction ending and post a non-contingent hard earnest money deposit by the following day. A standard closing generally happens within 30-45 days of the contract signing for real estate and within 10 days for loan sales.
Buying and selling properties through CRE auctions has become increasingly popular as property owners are looking to sell their assets quickly with the highest certainty of close, while buyers are seeking ways to place money and capitalize on opportunities in new markets. These trending behaviors combined with the increased demand for a digital-first, real estate experience, mean online CRE auctions are quickly becoming the preferred method of transacting.
For brokers and their clients, selling a property through an auction comes with several advantages including providing a wider and more qualified pool of buyers, a higher close rate, and increased pricing — especially when using the right CRE technology:
A broader reach allows brokers to market to an engaged buyer pool well beyond their typical market, drawing local, regional, and national buyers to compete for assets in any market.
The best online auction platforms curate and execute a complimentary marketing plan tailored to each asset to target the most qualified buyers and draw them to participate in any given auction event.
Full due diligence, including a preliminary title search and a universal sale contract for buyers to review, eliminates negotiations and allows buyers to compete on a level playing field.
When an asset gets put into an auction event, there is a marketing period (usually 45-50 days) before the bidding window opens. During this time, interested buyers can tour the property, ask listing brokers questions, and review property files, third-party reports, and the form sale contract. Once the marketing period has ended, a 48-hour live bidding window opens, ending with the deal being awarded to the highest bid. The winning bidder must then execute the sale contract within 2 hours of the auction ending, post a non-contingent hard money deposit by the following day, and close within the time specified in the sale contract (typically 30-45 days). Having all due diligence completed upfront and a condensed closing window can save 6-months or more compared with the timeline of a traditional sale.
All bidders are fully vetted prior to the start of the auction and must show proof of funds up to the amount they want to bid. The upfront diligence and vetted buyer process significantly reduces the risk of a re-trade or deal fallout and provides sellers, and their brokers comfort that purchasers will perform, and their deal will close.
Online auctions create a social dynamic where the joy of winning is often overshadowed by the fear of losing. The competitive bidding environment is bolstered by investors’ fear of a missed opportunity, resulting in full market pricing for sellers.
Through the expanded buyer pools, national reach, complimentary marketing, and competitive environment of social competition, online auctions result in a larger bidder pool competing for each asset, driving pricing, and maximizing the sale price.
But how can you ensure you’re maximizing your potential for success with a CRE auction?
This is where Buildout can help.
We’ve joined forces with RI Marketplace, the best-in-class commercial real estate online sales platform that offers traditional listings and auction events.
When you add your properties to Buildout, your listings are automatically syndicated to the RI Marketplace network. From here, a team of experts will work to assess listings to determine whether a property is a good fit for an auction. And, if one of your listings is determined to be a good fit, they’ll reach out to see if you and your client are interested in pursuing an auction.
As evidenced by their industry-leading sell-through rate of 83%, RI Marketplace is highly selective about which properties they allow on their auctions. They’re also selective about who they allow into the bidding process by carefully vetting interested investors with a bidder registration process that requires proof of funds. RI Marketplace runs targeted auction events to bring buyers who have purchased properties via RI Marketplace auctions before and know what specific markets and/or asset types they like.
And unlike other auction sites that will take any asset to auction and cut the broker out of the deal, RI Marketplace puts the broker front and center giving them the resources and tools they need to be successful.
For every transaction we do—we are running the sale in complete collaboration with a listing agent or broker,” said James Shevlin, COO and President of RI Marketplace. “And if a seller brings us a deal with no broker attached to it, we will bring one on. Third-party brokers are our boots on the ground in the market and are essential to managing and running a successful auction event.”
Mr. Shevlin notes that he sometimes hears brokers warn clients away from auctions because they see the buyer’s premium as an additional cost but in general the premium functions as a way to pay closing costs and other fees seen in a traditional transaction and can sometimes get brokers a larger commission than they would otherwise get if they sold the property on their own.
When you leverage the right platform, the CRE auction process can be a safe, transparent, and fast way to buy and sell commercial real estate. Fortunately, by using Buildout to syndicate your listings to RI Marketplace, you can easily take advantage of the industry-leading CRE online platform.
Want to learn more about how you can tap into CRE auctions with Buildout? Request a demo today.