By Mary Fran Gill, Auctions by ATG
As the calendar begins its countdown to year-end, it is timely and appropriate for business owners and individuals to consider those tasks that must be completed by December 31. One significant task is to evaluate the potential to sell or buy commercial real estate.
For those whose year-end deadlines mandate the disposition or acquisition of commercial real estate, it may be wise to consider taking advantage of the auction process. It is a viable and time-sensitive alternative to the more conventional but less stringent listing process.
One of the greatest benefits of the auction process is the ability to generally control the timing of the sale of an asset. Through an auction, rather than waiting for offers to come in via the conventional listing process, there is a specified conclusion. The auction will take place at a certain time on a certain day.
There are a variety of circumstances that may dictate the sale of real estate by year end, including: • Tax matters— to avoid certain tax liabilities, it may be necessary to complete the disposition of an asset during the tax year ending December 31; • Exchange deadlines—in order to complete the second half of a 1031 Starker Exchange, it may be necessary to complete the sale (or acquisition) of a property by year end; • Investment allocations—often a partnership or investment entity will establish certain guidelines for how money is invested; how investments are allocated according to investment type. These guidelines may specific that a certain allocation has to be achieved by a calendar year-end.
There are a number of different types of auctions, including those where a sale is conditional and others that virtually guarantee a completed sale. A property that is sold through an “absolute auction” will sell to the highest bidder, regardless of price. This means that if someone is the highest bidder at $100, the property is sold for $100, plus any specified costs or fees, regardless of what the value might be.
This is in contrast to other auctions where a seller may stipulate that a property be sold to the highest bidder based on a price that meets a pre-determined and publicized reserve bid. In this case, if a property is listed subject to a reserve bid of $250,000 and the bidding ends at $245,000, the seller is not obligated to sell to the highest bidder. (It should be noted, however that it may be possible after the auction for the “high” bidder and the seller to further negotiate, come to terms and complete the sale through a more conventional bid/offer process.)
While year-end is quickly approaching, the good news is that a property can be prepared and marketed for sale at auction in as little as 30 days. This means that sellers still have a window of opportunity to leverage the benefits and techniques of an auction to meet a year-end disposition. But, the window of opportunity is closing.
While sellers have many reasons to focus on auctions for year-end, buyers also face similar motivations and mandates. They may need to make acquisitions to avoid capital gains, to complete an exchange or to meet certain investment allocation criteria.
The auction process represents a great opportunity for parties on both sides of the transaction to efficiently executive a strategy that includes a year-end close. The key is to be proactive and avoid the last minute rush to market.
Mary Fran Gill is the Director of Operations for Auctions by ATG which has completed auctions for commercial and residential/investment real estate throughout the suburban marketplace.
