Although commercial real estate auctions can seem more risky than other methods of purchasing commercial properties, in reality most of the complaints about these auctions don’t stand up to any real scrutiny. Here’s the truth behind five common myths about commercial real estate auctions:

1. Properties are only auctioned if there’s a problem with them. This myth likely has its origins in the housing crisis when many houses that hit the auction block had been abandoned to disrepair by both owner and bank. Although some auctions will feature distressed commercial properties, it is more often the case that the seller opted for auction to get the best price for the property or to sell it quickly (rather than waiting and hoping that the right buyer would stumble along eventually). For commercial real estate, auctions are a standard option rather than a last resort.
2. Buyers can’t check out properties beforehand. This myth seems to have its origins in reality TV shows about house flipping that show buyers spying on residential properties trying to guess at the true state of the building and its value. However, as stated in the previous answer, commercial auctions are at the seller’s request and, as the seller wants to attract buyers and get the best price for the property, he or she will happily provide answers to your due diligence questions before the bidding starts. In fact, it will be much easier for you to obtain the necessary funds to purchase the property at auction if you do proper due diligence beforehand.
3. Properties at auctions always have hidden costs. Reputable auction houses will almost never charge buyers a fee to participate in an auction, though you may be asked for proof that you can back up your bid and most auctions prefer all-cash offers. If you’ve done the due diligence suggested in the previous answer, then you should already know if the property has any liens or back taxes attached to it and you shouldn’t encounter any surprise costs after you’ve won the auction.
4. Auctions prey on the property owners’ misfortune. This is another myth with likely origins in the housing crisis. As previously stated, commercial auctions usually result from the seller deciding it’s the best way to get the most out of their investment with the least wait. Even in the event that the auction is the result of a foreclosure, with commercial properties, that foreclosure is far more likely to be a deliberate decision on the part of the owner to get out of a project that hasn’t worked out as planned than a big bank forcing a small business off of their premises.
5. Auctions are always fixed. Sales of commercial properties are highly regulated regardless of whether the property is sold at auction and reputable auction houses wouldn’t exist if they routinely cheated their customers or used underhanded tactics such as ghost bidders. If you have questions about an auction house’s reputation, talk to other investors, real estate agents, mortgage brokers, or private lenders in your area to find out what they think of them.

And, finally, keep in mind that hard money loans can be especially helpful when you plan to purchase a property at auction for two reasons: a hard money loan is essentially the same as an all-cash offer (which is very appealing to the seller) and it can close in a much tighter timeframe (as little as one or two weeks if you can provide all the necessary documentation in a timely manner). If you have questions about how to line up a hard money loan for your next commercial real estate auction, contact Montegra at 303-377-4181.