How to Register as a Buyer at Online Commercial Real Estate Auctions

The thought of purchasing a multimillion-dollar real estate asset at an online auction is daunting for some and unimaginable for others. Long-time real estate investors, accustomed to purchasing properties through the traditional sales method, may not be comfortable with live auctions held online. And investors with little or no real estate buying experience might feel doubly disadvantaged having to master both the investment and auction processes simultaneously.

But online real estate auction platforms are surprisingly straightforward. They are designed based on the best practices of online auction platforms, from the U.S. Federal Reserve to Christie's, and they are organized around the traditional commercial real estate sales process that brings together documented owners with qualified buyers, so assets can change hands quickly and seamlessly. They also offer unique advantages compared to the traditional investment sales process.

According to Victor Gutierrez, Vice President, Platform Operations at Ten-X (purchased this year by CoStar Group, the publisher of LoopNet) the primary benefit of online auctions is that they reduce the time it takes to sell an asset compared to the traditional sales process, which he referred to as a drip campaign. He said that traditional marketing is structured to “provide a little bit of information to the market to get somebody interested in a property,” and then a little more information is provided to get potential buyers to sign a confidentially agreement so they can dig into information and “make a determination [about] whether or not they want the asset.”

On the other hand, Gutierrez said, “The Ten-X process kind of flips that on its head.” The Ten-X team provides all of the necessary information up front so potential purchasers can look at the materials, conduct tours, etc., right away. If potential buyers are intrigued by their findings, they can register to bid.

Registering to bid at online auctions is a similar process across most CRE platforms. LoopNet spoke with Gutierrez about the buyer registration process at Ten-X.

The process begins with the simple step of setting up an account with an email and password. Once you receive a confirmation email you can log in and begin to populate your buyer profile. Right out of the gate, before you complete your profile, you can search property listings by asset type and geography, indicating if you are interested in either the property itself or its debt.

To investigate a property listing more fully, you will need to develop a profile by providing basic information that establishes your identity. You will also need to identify your role, such as private investor, institutional investor or broker, as well as the general value of the real estate assets you own.

You will be prompted to indicate property preferences, such as property type and geography as well as the price range you are targeting. Finally, you can indicate if your buying strategy focuses on stabilized or value-add properties. Stabilized properties are those that tend to be in good physical condition and mostly leased, while value-add properties may be partially vacant or require renovation.

Once your profile is complete, you can search individual listings and see general information about each, including a description of the investment opportunity featuring details like type of ownership, parcel number, percent occupied, gross and rentable square footage, and more. Location and market information is also available. General auction information is provided on the listing, such as the dates of the live auction as well as the starting bid amount.

To access private due diligence documents, you must electronically accept a confidentiality agreement. Once this agreement is executed, you will have access to an offering memorandum, market data, financial and operating statements, purchase agreements, pictures and videos, environmental and property conditions reports and title and insurance documents. Generally, buyers have approximately 45 days to tour the asset, talk with the listing broker, ask questions and decide if they want to place a bid.

As the auction date approaches, more documents are typically added to a listing and buyers are automatically notified when they are posted. If there are additional documents you need to review to better understand property conditions, finances or anything else, you can request these from the asset manager.

Gutierrez said that at Ten-X, asset managers are focused on preparing an asset for sale and educating potential buyers about the auction process. They understand that investors each require different documentation to help them accurately quantify the risks associated with a building. Gutierrez noted, “We’re all about … eliminating those risks. So, to the extent that we can help a buyer underwrite a transaction faster, that's what we want to do.”

If you find a property you are interested in purchasing, the next step is to formally register so you can bid during the live auction event. To register, you must present proof of funds in the form of cash or cash equivalents, such as brokerage accounts or unused lines of credit. At Ten-X, the proof-of-funds balance must equate to the amount of your anticipated maximum bid for an asset.

Experienced personnel in the Ten-X operations department review all materials so they can flag fraud or issues with documents. The purpose of this assessment is to find buyers that are fully prepared and financially equipped to bid and close on an asset.

As soon as account balances are verified, a process that generally takes less than one day, your account is activated, and you can bid up to your proof-of-funds balance.

If an account holder registered to bid in the past, getting their documents in order may require just a refresh, such as verifying current balances in previously submitted accounts. But sometimes properties are purchased with co-investors. In this case, one party may register a bid, but the other party must show proof of funds. Gutierrez said that, “this will require follow-up conversations, with the investor sending emails that confirm they are ready to buy this property as a co-investor.”

The mechanics of registering typically include contacting the asset manager via email or phone, letting him know of your intent, sending proof-of-funds documentation and waiting to hear that your balances have been verified.

The auction window is open for 48 hours, typically from Monday through Wednesday or Tuesday through Thursday at Ten-X. During that period, you can bid as often as you like, up to your proof-of-funds limit. Usually there is some bidding on the first couple of days, but the most action takes place in the last hour to 10 minutes of the auction. “That's when you'll see a flurry of bidding activity,” said Gutierrez. This is because once the seller meets their reserve price, they know they have an obligated buyer. After the reserve price is met, Ten-X usually drops the bid increments to ensure that maximum asset pricing is achieved.

The highest bid submitted before the auction clock runs out wins the asset. At this point, the contracts team will reach out and confirm details, including the total purchase price, the person to whom they should send the sales contract, etc. At Ten-X, two hours are allotted for winners to gather all necessary signatures, which are collected electronically through DocuSign. They include the seller and purchaser’s signatures, as well as acknowledgment from the title company that they have received the contract. The buyer is sent escrow instructions and given 24 hours to wire the earnest money deposit, which is usually 10% of the purchase price. These activities occur rapidly after the auction, so buyers should plan on setting aside time immediately after the close of the auction to execute these documents.

Whether at Ten-X or elsewhere, understanding the process of registering as a bidder will help you prepare the information and documents you will need to become an active bidder and, possibly, the successful purchaser of a property through an online auction.