The Benefits of a Custom Auction

IRVINE, CA—Custom auctions combine the familiarity of a more-traditional acquisition model with the transparency and efficiency of the auction process—but that's just the beginning, Auction.com's commercial real estate division general manager Gordon Smith tells GlobeSt.com. (Auction.com is a GlobeSt.com Thought Leader.) We sat down with Smith for an exclusive interview about the custom-auction process and what it offers buyers and sellers.

GlobeSt.com: Please explain what a custom auction is and how participants benefit from it.

Smith: The custom-auction process provides a more flexible approach to institutional-property sales. Combining the familiarity of a more-traditional acquisition model with the transparency and efficiency of the auction process, this is one of many transaction offerings available on our platform that offer both buyers and sellers enhanced ease and control.

Typically conducted on higher-priced properties, Auction.com's custom two-step process allows interested bidders to first qualify for a “short list” by submitting a sealed indicative offer prior to the live auction. Once the short list of bidders is compiled, all qualified buyers are given about four weeks to perform due diligence on the property before the online auction begins. Adding this step prior to the live auction benefits both the seller and the buyer. Through viewing the indicative offers, a seller gains insight into the number of bidders whose initial valuation of the property is in line with its own. In addition, by first requesting an indicative offer, the process ensures that the buyers on the “short list” are within striking distance of the seller's expectation, saving bidders time and money as they move forward in the process.

GlobeSt.com: Are custom auctions becoming more common for your firm?

Smith: We've been conducting custom auctions since 2013, and we'll continue to do so as market dynamics and specific circumstances dictate. While the decision to employ the custom auction option is ultimately made by the seller, broker and an Auction.com customer representative, who assess the situation as a team and determine the best strategy for achieving a successful sale, custom auctions are an attractive tool for sellers and provide a different avenue to sell assets.

GlobeSt.com: How is the auction process becoming more nuanced for all involved?

Smith: The process is tailored for both buyers and sellers to meet their specific needs. Participants are now able to customize their experience by allowing for a variety of options such as lease audits, property-management interviews and the ability to bring engineering teams onto the property to conduct full inspections. In the case of custom auctions, prospective buyers have the option of submitting an indicative bid in order to determine whether they will be able to compete successfully for an asset before they spend time and money conducting due diligence.

GlobeSt.com: What else should our readers know about custom auctions?

Smith: Custom auctions generally work best in liquid markets with high-demand properties. That said, there are several factors that go into determining whether a custom auction is appropriate. While we typically reserve the custom-auction option for higher-value assets, price point is only one consideration and others are often very specific to the situation at hand.