Misconceptions of Commercial Real Estate Auctions

Over time, some dramatic ideas about how commercial real estate auctions work have misled investors. While there are certainly some points you should know going into an auction, here are a few misconceptions and myths that you can leave behind.

There Are Hidden Flaws and Costs

A common myth about properties up for auction is that there must be something wrong with them. Examples of this gained notoriety during the housing crisis when abandoned homes in foreclosure came to auction, but it doesn’t happen as frequently as you may think. In fact, many homes are sold at auction because of the quick process, not purely out of necessity.

There will generally not be any hidden costs or fees involved in a real estate auction if you have a legal team, and work closely with the auctioneer. You would also be notified of any official documents you’d need to provide, and if back taxes were involved.

Some historical accounts and media portrayals of auctions have made properties seem mysterious and closed off. The truth is that if you have questions, the owner will most likely provide you with any information requested. Keep in mind that it is the seller’s prerogative to entice bidders, so your interest and inquiries will probably be welcomed.

The Auction Process Is Dishonest 

Perhaps you’ve heard rumors about auctions where deceitful bidding drives up prices to encourage real investors. Shady stories like this are certainly more amusing, but highly unlikely with today’s level of commercial real estate regulations. If you’re working with a legitimate auction house, you won’t have to worry about the process being rigged.

Sellers and auctioneers want a good reputation, and simply wouldn’t be able to continue business if dishonest behavior was common. Remember that if you have any reservations about the auction process, you’re free to attend one first to get a better understanding of how they work.

Hardships Are Being Exploited

Some people are under the impression that auctions only happen as the owner’s last resort. There might be some guilt and hesitance to participate if you believe that the owners are losing their possessions and dignity. Again, in most cases an auction is merely a business choice. You shouldn’t feel wrong about being involved based on misguided assumptions.

As with any kind of investment, it’s best to have properly researched every aspect of an auction before participating. Communicate with professionals and gain some experience before deciding if commercial real estate auctions are a good fit for your investment plans.

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