7 Tips for Buying Commercial Real Estate at Auction

27 Nov

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7 Tips for Buying Commercial Real Estate at Auction

In recent years, the commercial property auction market has seen a surge in activity due to an increase in commercial real estate foreclosure auctions. This trend has opened up exciting investment opportunities for many. In the world of commercial real estate, foreclosures and bankruptcies are commonplace, making buying properties at auction a promising path for those seeking potentially high returns. Drawing from our extensive experience in representing buyers at these auctions, we’re here to provide you with essential guidance to navigate this process effectively.

Keep Cash Ready for Commercial Property Auctions

Most commercial property auctions require buyers to close the deal within a short timeframe, usually around 30 days from the auction’s end. This means that securing conventional financing for the property is often impractical. To succeed, ensure you have cash available or a readily accessible credit line. Many purchase agreements in commercial property auctions do not allow for financing contingencies, so lacking the cash can put your earnest money at risk and potentially lead to damages.

Attend Property Tours

This tip might seem straightforward, but property tours are crucial for exploring the property thoroughly. Auctions typically offer limited dates for property tours. If possible, visit the property, engage with existing tenants (if the property is occupied), and inquire about any issues they might be facing. Gain a comprehensive understanding of potential improvements and major repairs that may be necessary.

Understand Auction Formats for Commercial Property Auctions

Commercial property auctions come in various formats, such as Reserve vs. Absolute Auction, Online vs. Sealed Bid, and more. It’s essential to grasp the differences in these auction types and their respective definitions, as they can vary based on the auction company hosting the event.

Be Prepared for Auction Dynamics

When participating in commercial property auctions, be aware that auction dynamics can be unpredictable. Some auction platforms, like Auction.com, are known for extending auctions at the last second with higher bids, resetting the clock. Be cautious about relying on last-minute bids to secure properties. Patience and strategic bidding are key to success.

Beware of Insider Bidding in Commercial Property Auctions

Some auction platforms engage in insider bidding to artificially inflate property prices. If you see bids surpassing your expectations, don’t panic. Sometimes these tactics are used to drive up the price. Even after winning, be prepared for potential requests to pay more. If you believe you’ve reached your highest bid, question the auctioneer to ensure transparency and fairness in the process.

Hire the Right Experts for Commercial Property Auctions

Effectively representing yourself in commercial property auctions often requires a team of experts, including a broker, real estate attorney, environmental firm, roofers, and inspectors. Due diligence is critical, and your team should thoroughly review all available materials and the building’s condition before making a purchase.

Manage Emotions Rationally

Participating in auctions can be exhilarating, but it’s crucial to set a limit and stick to it. Avoid getting caught up in the competitive spirit of the auction, as impulsive bidding can lead to overpaying. Recognize your limits and adhere to them for a successful outcome.

By following these tips and understanding the nuances of commercial property auctions, you can position yourself for potential success in acquiring valuable commercial real estate assets. Whether you’re interested in buying, investing, or exploring the world of auctioned properties, this guidance will prove invaluable.

Latitude Commercial provides commercial real estate services such as purchasing, leasing, landlord representation, tenant representation, and commercial property management throughout the states of Illinois and Indiana. To find out how we can help you, call us today at (219) 864-0200.

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