Auction or Just a Gimmick

[David Fritch]

There is a commercial property (strip mall) up for sale on auction.com later this month in my area. A group of us are interested in bidding. 

In our research we found that the property was purchased at a trustee sale in August of this year for 3.1 million dollars. We don't know exactly who this LLC was but they are using the registered agent from the state capital and Wells Fargo is listed as the primary officer. The listing broker says he "thinks it is a debt servicing company". The minimum bid on the property just dropped from 1.8 million to 1 million. The listing broker says that was because they did not have enough interest at the 1 million dollar minimum.

Many of the factors lead me to believe that the seller has a high reserve that they probably do not expect to be met. Of course they would love to make a quick profit if that happens but this auction is mostly about testing the market and finding leads. Based on net operating income and cap rate the property should sell for around 5M, and better opportunity for results with good management.

Is there any chance that this is a real auction and the highest bidder will walk away with the property if it's less than 5M? I feel if seller wanted top dollar they would widely advertise and do a live auction not a quieter sealed bid. My associates feel this may be a bank cutting losses?? Any have experience with Auction.Com on a similar situation? 

[Christopher Telles]

Auctions can go either way, they are real and a possible good value purchase can be achieved, or they are set up to find a potential buyer by priming the pump so to speak and then engaging/following those interested and/or testing the market to 'set' a realistic price expectation.

Here's the thing, just like any other deal, you won't know until you make an offer, and if countered continue until you are comfortable with a deal or walk. 

As in any opportunistic or value add opportunity, the investor extracts value when they make the effort others won't or don't, and are willing to put up capital up to the point when it starts to become uncomfortable.

If you like the possibility of owning this property then I would suggest you spend whatever my minimal amounts are required to get comfortable before the auction, not full due diligence just enough to answer any nagging questions, and then make your initial offer.

If the bidding starts to run up from multiple buyers then move to your next comfortable price. If it's beyond that point, walk. Then watch and wait.

You'll either see it sell, or it won't, and you'll then know there's an opportunity to potentially buy it for the last price in the auction, or less now that multiple bidders are no longer involved.

Design an acquisition plan. Don't deviate. Buy. Walk. Easy peasy!