Auctions offer sellers two factors that are missing from the traditional negotiated sales process: a set time frame and control over the sales process. Particularly in today's market, many properties are experiencing limited or negative net operating income and sellers are supporting properties out-of-pocket each month. Tenant bankruptcies are causing unanticipated high vacancies or lead tenants already have vacated properties. Other buildings may be in or subject to pending foreclosure or bankruptcy, or a lender already may control the property and needs to get it off its books.
Even if the traditional transaction market was functioning properly, such properties would be difficult to sell. But in today's market, brokers and sellers come up against issues of financing, valuation, and lack of comparable sales. For example, how do you value properties with high vacancies, low or negative net operating income, or no comparable sales? And while it may be relatively easy to find a buyer, can the buyer find financing?
The auction process eliminates many of these concerns by giving the seller control over the sale. In the auction process sellers control the following factors:
• timing of the sale, usually 60 to 90 days;
• structure of the offering;
• financing through either an assumption, structured seller financing, or committed third-party financing;
• predetermined purchase and sale agreement:
To make buyers comfortable with bidding and the purchase, the seller must make the contract fair and commercially reasonable;
• property on an as-is, where-is basis with limited warranties; and
• closing in 30 to 45 days from the date the contract is signed.
What more do you need to know?
Omar P. Bounds III A.A.R.E., C.E.S.,G.P.P.A
The Bounds Auction Company
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