Auction market slowly moving online to offer buyers and sellers a simpler way to transact
Commercial Real Estate auctions have long been thought of as a last resort for bankrupt landlords, but in the age of remote work and social distancing, auctions have emerged as a convenient way to get rid of the excess supply of CRE that is currently available in the country’s business hubs.
In a nod to the digital age and the need for COVID-19 safety, auctions are now also increasingly taking place online.
John Jack, CEO of Galetti Corporate Real Estate, estimates that around 5% of real estate sales in South Africa are transacted using online bidding platforms but given the growing popularity, this could increase to up to 25% in the next five years.
While Jack believes that there will always be a place for traditional commercial property sales, the Galetti team recently launched their new online platform, Galetti Auction Division as an additional route to market for clients. “This is a new way for us to move commercial property and it is backed by an experienced team.”
Two key differences between the online auction process and traditional, in-person bidding:
1) Prospective buyers can bid from anywhere in the world. This opens the process up to the overseas market and gives embattled landlords access to a wider pool of prospective buyers.
2) No auctioneer. The online system acts as an invisible auctioneer, able to regulate bidding increments and the entire bidding process as buyers continue to bid against each other.
Like in-person auctions, online bid prices are updated in real-time and the highest bidder is announced at the end of each auction.
Benefits of selling via auction:
- Mass exposure to a wider pool of possible buyers
- A ‘quick’ transaction in comparison to traditional property sales
- Transparency throughout the marketing and selling process
- Qualified buyers on the auction day
- Competitive pricing
The best of both worlds
Alternatively, when there is a premium asset with a clear demand, a sealed bid model is often preferred.
With significant confidentialities in place, pre-qualified bidders are invited to submit offers simultaneously for the property or portfolio of properties so that no bidder knows how much the other auction participants have bid.
This often ticks the boxes for listed entities who wish to transact confidentiality without raising the concern of the market before an official SENS announcement.
Online auction myth-busting
When some people think of online auctions, they think of ‘foreclosure’. However, there are many other reasons why an owner might choose to sell a property at auction.
Four commonly held auction myths busted:
1) Bidders are not qualified and are in the room to simply kick the tyres. Potential bidders pay a registration fee to be part of the online auction to prove they are serious about purchasing.
2) Buyers can’t view properties that are being auctioned online, in-person. In most cases, legitimate prospective buyers will be invited or be able to make an appointment to visit the property before the auction.
3) Sellers must accept the winning bid. Prior to the auction, a broker will work with the seller to determine a reserve price (the minimum price for which the property can be sold) and this is typically not disclosed to buyers. Just in case, most brokers will advise that sellers set the winning bid as Subject To Confirmation, meaning that the seller still has the right to reject the winning bid.
4) Auctioneers compete against traditional commercial real estate brokers. Every property is different, and real estate brokers understand that not every property can, or should be sold the same way. Auctions are also useful to property brokers in that if they have struggled to sell a property using traditional means, this can be an effective way to reposition it, ensure a fast sale, and find a fresh pool of buyers.