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 an auction, the timescale of selling a property via auctions vs a private sale for cash to professional commercial property buyers, commercial property agent fees, upfront costs, and the 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.
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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:
- Offer the first refusal to your tenants
- Sell via a commercial property agent
- Auction your commercial property
- 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 the long term.
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 the 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. Therefore it can take several months to find a buyer, respond 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 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 a much more complex process, as the value of the business largely depends on the goodwill of repeat customers, profit and loss statements and 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. A 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 certainly 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?
- Certainty and speed – Whether you are a commercial landlord or an owner-occupier, selling a commercial property in auction means that at the 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.
- 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.
- The popularity of your property could push up the price if there are several bidders for your property. This largely depends on you taking the risk of putting in a very low and enticing guide price to start the bidding process.
What are the disadvantages of selling a commercial property at auction?
- Commercial property auctions are like marmite. Some buyers don’t like the commercial property auction 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 the ability to get a commercial property bridging loan, typically at a 1% interest rate per month. The winning buyer must ensure that he/she can act with the speed required to complete the purchase or risk breaching the rules of a legally binding sales contract.
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.
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 the reserve price may not exceed more than £99,000. The reserve price is the price you are legally obliged to sell. You could end up giving away your property if you aren’t careful.
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 commit to selling your commercial property in an auction at a price you aren’t happy with. Are you comfortable with making these sorts of risk/reward decisions?
You are expected to pay upfront fees. These include an auction entry fee and legal fees for preparing contracts and searches.
- 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 by 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.
- 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 the 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 the next auction and incur all the upfront costs again, and no guaranteed return.
- The frustrating wait for the next auction. Auctions are held every two or three months. You also have to allow one month of marketing prior to the auction to generate any interest, conduct any viewings and allow potential bidders the time to download the legal pack and so on.
If you need to sell right now, you can’t take the 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 often overlooked by an auctioneer or a commercial property agent. Commercial property landlords trust us to achieve an expedited sale – as proven by our genuine testimonials.
Even if your property has problems such as squatters, title issues, boundary disputes, or 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 your solicitor send us the legal pack?
- There are no fees to be paid. There are 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 on the 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.