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? 

[David Fritch]

I wanted to give an update on this deal. We closed last week. We won the auction at 3.25M. I was pretty skeptical up until the end that we'd actually close on it. The seller didn't even give any kind of commitment until 10 days before we closed. 

I think we were the only ones bidding from 2.5M on. The ghost bid just kept pushing it up. They had our letter of Pre Approval so they new exactly how far we'd go. I might have handled things differently but I wasn't the trigger man. I just watched from my phone at work. It's interesting how they changed the minimum bid a couple of times to milk every dime out of us and how the "reserve not met" button turned to reserve met a couple minutes after the auction expired. Auction.com is a bunch of sharks and they're going to make every bit of money they can. 

We tried getting multiple letters of approval at different prices and submit them last minute so they auctioneer/ghost bidder couldn't see our ceiling. There's a chance that strategy could work, especially if you had multiple registered accounts which would be a chore in itself. 

If you wanted to get the best possible deal, you could register, follow the auction and then make a slightly higher offer than the winning bid direct to the listing broker.

All in all it's a good deal and appraised for 5.5M based on current NOI, and we'll increase that.