To Auction or Not To Auction
That is the Question
“We’re ready to sell – should we auction…?”
At Modo we are big fans of the auction process not just because of the numerous benefits for our Sellers but the transparency that comes with it. However, not every campaign suits an auction strategy – here are some points to consider.
Market appetite?
Is the property returning 5-6% net and less than $1M with 3 years left on the lease?
Fantastic! There are plenty of buyers in this space and there is no doubt that we’ll get competitive bidding to help maximise the price on an unconditional contract for our sellers. Getting buyers is not the issue, making sure the campaign is run well to encourage competitive bidding is the goal. An experienced auctioneer with experience in selling commercial property is a must!
Is the property vacant in a stunning heritage building that requires maintenance and a major refurbishment?
It’s a bit niche and buyers will have a wide opinion on value as it will depend on what each buyer wants to do with the property. In this case, it would be better to run an ‘expressions of interest’ campaign and not put a ceiling on price.
Is it going to be easy for buyers to obtain finance?
We ran an auction campaign recently for a block of land in Bulla which generated TONS of enquiry (the owner priced it to sell quickly) however, only so many were in a position to bid on the property as most financial institutions required 50% LVR on property in green wedge zone without a dwelling on it. We still sold for a price the owner was happy with, but this did knock out a number purchasers.
Lenders will also consider factors such as
- Lease term and options
- How long the existing tenant has occupied the space
- Quality of the tenant
- Vacancy in the area
- Cladding or major building repairs required
How fast do you need to sell?
Using the same example of our Bulla campaign, this owner wanted the property sold as fast as possible as they were looking to reinvest the funds into another venture. We ran a 2-week auction campaign and sold it prior with a 30 day settlement. All parties were happy with the outcome and we feel we were able to maximise the purchase price.
In conclusion, we recommend seeking the advise of an agent who has experience in private sales, expressions of interest campaigns, and auction campaigns. Here is another tip – if you are going to go down the auction path, remember that not all auctioneers are equal! Engage a professional, that is someone who understands commercial real estate and has lots of experience calling auctions. It’s not just about counting numbers, an experienced auctioneer knows how to draw a bid from ‘nervous’ buyers or those who are ‘holding back’ as their bidding strategy.
As well as leading Modo’s commercial sales and leasing team, Richard Impiombato has been calling auctions for both commercial and residential properties in a professional capacity for over 25 years. If you’re considering selling your property and want advice on how to maximise your price, he should be your first point of contact.
