The Truth about Pros and Cons of Selling a Commercial Property at Auction

Are you thinking of selling a commercial property at auction?  In this guide we will explore the pros and cons of selling a commercial property in auction, the timescale of selling a property via auctions vs a private sale for cash to a commercial property buyer, commercial property agent fees, upfront costs, and associated risks.

If you are considering selling a commercial property, your first step will be to explore different options of sale available to you, in order to achieve the best possible price within your preferred timescale. 

Options for selling a commercial property

You have several options available to you when it comes to selling your commercial property including selling to your tenants, at an auction, property buying companies, commercial property agents, raffling it or selling it yourself.

There are four popular ways to sell a commercial property.  You can:

  1. Offer the first refusal to your tenants
  2. Sell via a commercial property agent
  3. Auction your commercial property
  4. Sell directly to a commercial property buyer

We will now explore each option in much more detail.

Selling your commercial property to your tenants

If you’re selling a tenanted commercial property, it is worth asking the tenant if they would be interested in buying the freehold.  Naturally the initial response is likely to be a ‘yes’.  Not all the tenants can raise the deposit or apply for a mortgage.  It might take several months before the sale can proceed.  Equally it may alienate your tenant and they might wish to move out, leaving you with business rates liabilities.

If your tenants are High Street brands, they won’t be interested in buying your commercial property.  This is because they offset their rent as an expense against their profits and changing economic conditions mean they can’t invest in assets over long term.

High Street was already on decline prior to Covid19 pandemic. Selling a commercial property saves on rates.

Selling via a commercial property agent

Selling on the open market with a commercial property agent might be an attractive option however it depends on the demand for the property, whether it is seen as an investment, a tenanted property, or it appeals to an owner-occupier.

Commercial property agents fees vary but can be up to 3% plus VAT of eventual sale price or a minimum sum.

The biggest frustration of selling a property on the open market is that the buyers are not committed, and therefore it can take several months to find a buyer, responding to queries, and have the survey carried out.  Even after all this, there is no guarantee that the sale will go ahead.

If an owner-occupier wishes to a sell commercial property with their business, then the value of the business needs to be calculated and marketed accordingly.  This makes selling a commercial property much more complex process, as the value of the business largely depends on the goodwill of repeat customers, profit and loss statements and an inventory.

If you wish to sell your commercial property with a trading business, then your only option is to sell to another owner-occupier and potentially gift them a deposit or provide them with flexible terms to raise the deposit in order to buy your commercial property with a mortgage.  Typical deposit can be as much as 40% of the value of the commercial property which limits the potential audience who can buy your property.

If you are thinking I need to sell my commercial property quickly, Property Saviour are the ones to trust.

You can sell your commercial property as it is to Property Saviour.  We won’t be able to buy the business but we will certainty be interested in buying the bricks and mortar.

Pros and cons of selling your commercial property at auction

There are several advantages and disadvantages of selling a commercial property at auction.  Naturally a commercial property auctioneer won’t tell you about its cons.  It is important to understand these disadvantages in order to make an informed choice.

Let’s cover the pros of selling a commercial property at auction first.

What are the advantages of selling a commercial property at auction?

  1. Certainty and speed – Whether you are a commercial landlord or an owner-occupier selling a commercial property in auction means that at fall of gravel, the buyer has exchanged contracts.  This is far quicker than selling your commercial property on the open market because 28 days after the auction, the completion takes place.  
  2. Transparent sale – If you are a Professional Executor selling an inherited commercial property, it is important that you achieve a transparent sale particularly if the beneficiaries are in disagreement over the sale price.  The highest bidder wins the auction and all the beneficiaries can watch the live bidding or attend the auction in person.
  3. Popularity of your property could push up the price if there are several bidders for your property.  This largely depends on you taking a risk of putting in a very low and enticing guide price to start the bidding process.
 
Selling at auctions isn’t for everyone though because if you are an inexperienced seller, you could be vulnerable to several risks and therefore, auctioning a property should be considered as a last resort.  This brings us to disadvantages of selling a property in an auction.

What are the disadvantages of selling a commercial property at auction?

  1. Commercial property auctions are like marmite.  Some buyers don’t like commercial property auctions process.  The competitive nature of bidding and the inability to secure a mortgage, within 28 days for an auction purchase, can put off some buyers.  This limits your pool of potential buyers – as your property is only being shown to either cash buyers or those with ability to get a commercial property bridging loan, typically at 1% interest rate per month.  The winning buyer must ensure that he/she can act with speed required to complete the purchase, or risk breaching the rules of a legally binding sales contract.
  2. Low guide price – in order to maximise interest, the property auctioneer will recommend that you put in a low guide price.  The reserve price mustn’t exceed 10% above the guide price.  This means that if your property has attracted very little interest, it may not achieve a sale or sell at a very low price.  So let’s say that your property’s suggested guide price is £90,000 then reserve price may not exceed more than £99,000.  The reserve price is the price at which you are legally obliged to sell.  You could end up giving away your property if you aren’t careful.

  3. It can be a gamble – you might tempted by the auctioneer’s enthusiasm to set a very low reserve price to create the buzz, interest and excitement in an auction room.  This can work for you, or it can backfire big time.  You will legally committed to selling your commercial property in auction at a price you aren’t happy with.  Are you comfortable with making these sort of risk/reward decisions?

  4. You are expected to pay upfront fees – these include an auction entry fee, legal fees for preparing contract and searches. 

  5. Auctioneer gets paid first – this is probably why they don’t tell you this.  As soon as the hammer falls, they have secured their commission well before the completion date.  It is your commercial property, you have taken a risk on putting in a very low guide price, it has now sold, and it seems unfair that their firm gets paid before the seller.  In fact, you’d be one of the last people to get paid. Auctioneer is the first, your solicitor is the second and you are the last.
  6.  There is no guarantee that your commercial property will sell at auction.  If there are no bids or a few bids that don’t meet the reserve price then auctioneer will announce that anyone interested to get in touch.  Unsold auction properties have a stigma attached to them.  You will get offers well under the indicative guide price.  You can try and sell again at next auction and incur all the upfront costs again, and no guaranteed return.
  7. The frustrating wait for the next auction.  Auctions are held every two or three months.  You also have to allow one month’s of marketing prior to auction to generate any interest, conduct any viewings and allow potential bidders the time to download the legal pack and so on.  This means that if you need to sell right now, you can’t take a risk of selling with auction and wait for up to two or three months for the next auction.

    There’s an alternative way to sell for cash and have money in your bank account within 3 weeks or quicker.

Selling a commercial property privately

Before signing on the dotted line with a commercial property auctioneer, have you considered the alternative way to guarantee a quick sale?  Selling your commercial property privately has several benefits – as you will now discover.

Our commercial property buyers understand the hidden value within a commercial property that is often overlooked by an auctioneer or a commercial property agent.  We are trusted by commercial property landlords with achieving an expedited sale – as proven by our genuine testimonials.

Even if your property has problems such as squatters, it has title issues, boundary disputes or it is a short lease commercial property, we can help.

Say goodbye to frustrating wait, delays, excuses and those fees – without the hassle.  Here are the benefits of dealing with Property Saviour:

 

  • There is no frustrating wait for the next auction.
  • Sell in as little as three weeks or quicker.  How soon can you solicitor send us the legal pack?
  • There are no fees to be paid.  No commercial estate agency fees and no solicitor fees.
  • No valuation fees.
  • We pay up to £1,500 of your legal fees.
  • There is no uncertainty or delay because we give you daily updates progress of your sale

Whether you are a commercial property landlord intending to retire or a business owner looking to sell, we are here to make the process easier and quicker.    Please fill in the enquiry form and we will call you back to chat about how we can help.

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