Gavel (Commercial Real Estate Auctions)

A Complete Guide to Commercial Real Estate Auctions

The contents of this article do not constitute financial or investment advice. To find a solution tailored to your needs, reach out to our team of commercial real estate professionals.  

A commercial real estate auction can be an excellent way to obtain your next property. Contrary to popular belief, real estate auctions are not exclusively comprised of dilapidated or foreclosed buildings. While buildings of such nature certainly do go up for auction, most properties at Mississippi Real estate auctions are in good financial standing and are able to pass inspections.

“How do real estate auctions work?” is a question that Speed Commercial Real Estate gets asked often, as we offer auctioneer services to the people of Jackson, Mississippi and beyond.

The Mississippi commercial real estate marketplace is currently seeing excellent selling prices and mortgage rates that are at an all-time low. Now is an excellent time for sellers to capitalize on the current seller’s market and for buyers to capitalize on investment opportunities. And the process is made even easier when done through commercial real estate auctions.

Types of Properties at Real Estate Auctions

Some properties at real estate auctions are there because they have been foreclosed on or the previous owners declared bankruptcy. Auctions are a tool that banks use to turn real estate properties into fast cash, but that is not the only reason they exist.

The majority of commercial properties that go to auction are sold using this method because sellers are looking to take advantage of a system that works quickly and offers a way for buyers to fairly make competing offers. Each bidder knows exactly what kind of offers they are up against and when higher offers are made. This allows buyers to make fast and informed decisions.

Historically, real estate auctions were primarily used to sell agricultural and rural properties, estates, and senior transitions. Today, you will find all types of properties at real estate auctions including commercial, residential, luxury, and farmland.

Benefits of Real Estate Auctions

In addition to the question “how do real estate auctions work?” we are often asked why buyers and sellers opt for this method.

Commercial real estate auctions offer:

  • Transparency – When you put in an offer at a real estate auction, you know exactly where your offer stands in comparison to the others. When you go to put on offer on a property that has been listed, you will likely be told if you are up against other offers, but you won’t have any clue what those offers are.
  • Fair competition – When you participate in real estate auctions, you are on the same playing field as all other bidders. There are no ‘closed door negotiations,’ no one to ask where your financing is coming from, no way to obtain early possession, or any of the other situations that frequently cause prospective buyers to lose out on a property they’re interested in. Everyone that participates in real estate auctions are under the same terms and conditions.
  • More control – Because you know exactly where your bid stands in comparison to other bidders, you can raise your bid or pull out of the auction whenever you want. This can save buyers an extraordinary amount of time – and money.
  • Fair value – Tax assessments, appraisals, the building next door… these are all factors that go into determining the market value of a property when it’s listed on the market. However, the real market value is what people believe is fair and are willing to pay. Auctions allow buyers to essentially set their own prices and only bid as high as they’re willing to pay.

With learning all those benefits of real estate auctions, you’re probably excited to participate in one! Before you place your first bid, it’s important to understand how commercial real estate auctions work.

We are going to cover the terms and conditions of real estate auctions, the different types of auctions, and how the process plays out.

Real Estate Auction Terms and Conditions

Real estate auctioneers will set their own terms and conditions for an auction, and they are likely to be different depending on the auction you’re participating in. If you aren’t familiar with the real estate auction process, you might not understand some of the jargon that is used.

Here are some important terms to know:

  • CASH – If an auction is “CASH” this means that a buyer is not required to have financing in order to purchase a property. Purchases can be made 100% in cash or with financing that was obtained through a lender before the time of the auction.
  • AS-IS – Buyers are responsible for all necessary repairs to properties that are sold at auctions “AS-IS.” This doesn’t necessarily mean that the property in in poor condition, it just means there is no opportunity to negotiate repairs or modifications to the property. Most often, potential buyers will have the chance to preview a property and even have it inspected, so they know exactly what they are spending money on.

Sellers are obligated to let potential buyers know about all known property conditions, and many will provide a disclosure report for full transparency. Auctioneers will typically do everything they can do to make buyers feel confident that they are spending their time and money wisely.

  • 30-DAY CLOSING – Auctioned properties that have “30-DAY CLOSING” give buyers 30-days from the date of sale to the final closing date. If you need to get financing in order to pay for the purchase, you can do it during this time. Make sure you let your lending company know that you are on a schedule and need the funds in 30-days or less.
  • NON-REFUNDABLE EARNEST MONEY – Earnest money is kind of like a down payment. When you put earnest money toward a property at auction, you are saying that you will move forward with a contract, should you make a purchase. The amount of earnest money you put down will either be a flat rate determined by the auctioneer or a percentage of the purchase price. Your earnest money will go toward the final price you pay at the time of closing.

Real estate auctions can be tricky if you’ve never participated in one. Luckily, you don’t have to go at it alone. Most auction companies allow real estate agents to represent buyers and will write compensation and cooperation rules into their terms and conditions. Speed Commercial Real Estate has 17-years of experience in Mississippi real estate and auctions and will work hard to get your next property at the best possible price.

Types of Real Estate Auctions

While you’re searching for Mississippi real estate auctions, you’ll come across a few different types:

  • Absolute – These auctions don’t have any limiting conditions. The property will go to the highest bidder, no matter how low (or high) the bid is.
  • Reserve – Some sellers will put a bottom dollar amount on the property, which the bidding will start at. Some reserve auctions will also allow the seller to accept or reject the final bid.
  • Live – Live auctions happen in-person with an auctioneer calling out bids that audience members make. This is the type of auction that is typically shown in movies. The room is full of energy, the auctioneer talks quickly, and bids are placed at a rapid rate.
  • Online Only – Some auctions will only be held online, which means you will have to register and place bids through the auctioneer’s website. The website will tell you when you can place bids, when the bidding window stops, and the other bids that you’re up against.
  • Live Stream – Buyers have the option to attend live steam auctions in-person or watch them online and bid through the auctioneer’s website.
  • Sealed Bid – In sealed bid auctions buyers will be asked to place their bids online within a certain timeframe just like with online auctions but competing bids will not be disclosed until the auction ends.

It’s very important for buyers to pay attention to whether an auction is “Absolute” or “Reserve” so there aren’t any surprises when it comes to starting bids. In addition, if you are looking to buy investment property or expand your business in another state, keep an eye out for those “Online Only” and “Live Stream” auctions. You can place bets from anywhere in the world!

The Real Estate Auction Process

The most crucial point in the real estate auction process is when the reserve price is met (if there is one). There will usually be a few bids placed in the first day or two, but once that reserve price is met the property could go at any time. This is when the competition really begins, and strategy is required.

When a buyer wins an auction, the auctioneer will walk them through signing paperwork, the payment process, and the terms of the sale. If everything goes according to plan, the winner will have a new property in their possession in 30-days or less.

It can certainly be frustrating to go through a bidding war on a property that you are highly interested in only to lose out to another seller in the last few moments, but the entire process can often be exciting. Even if you can’t get the property that you had your eye on, you’ve likely to learn things that you can apply to the next commercial real estate auction you participate in.

Mississippi Real Estate Auctions with Speed Commercial Real Estate

You don’t have to go through the real estate auction process alone! Allow one of our professional and experienced real estate agents at Speed Commercial Real Estate to help you at your next Mississippi real estate auction. Let’s get you into your next commercial real estate property FAST!

Still have questions about commercial real estate auctions? Give us a call!

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Location
805 South Wheatley,
Suite 190
Ridgeland, MS 39157