Real Estate Auction vs. Traditional Sale: The Pros and Cons of Both

You have two main options when selling a commercial real estate property: traditional sale or auction. Depending on your objectives and timeline, each option has advantages and disadvantages that you must consider first to receive the best price possible. To help you make a better-informed decision, these are the pros and cons of selling your property through a real estate auction vs. a traditional sale.  

What Is a Real Estate Auction? 

An auction selling process is different from a traditional method. Instead of showing the property to interested parties and waiting for them to make an offer, an auction introduces a commercial building or plot of land to a group of prospective buyers all at once.  

Buyers then bid on the property once the auction starts. The person or entity that puts in the highest bid by the end of the auction “wins” the property. Some auctioned properties have a minimum sale price (reserve) that buyers must meet.  

What Is a Traditional Sale? 

With a traditional sale, a real estate agent will advertise your property and wait for buyers to show up. Interested parties will then look at your building or lot to see if it meets their needs.  

Several prospective buyers might end up tendering you an offer through your agent to buy, which you can then accept, modify, or reject. Once an offer has been accepted, you will close on the property.  

The closing usually takes place within 60 days after accepting an offer. During that waiting period, the buyer must complete their financing arrangements. Your property’s title deed is checked to ensure that it is clear, while the property itself may need to be inspected for any issues.   

Why Sell at Auction vs. a Traditional Sale? 

The main advantage of selling a commercial property at auction is a faster transaction completion process. Because the buyers must have the funds on hand the day of the sale or shortly after, you don't have to wait on them to secure financing.  

Another upside of selling your property through an auction is that prospective buyers may bid up the price even higher than you expected. Good auctioneers can create a lively atmosphere filled with a sense of urgency, encouraging buyers to bid above your target price.  

If you have a desirable property, selling at auction could help you realize a higher sale price and heftier profit than a private sale. 

How Much Does Selling a Property Cost at an Auction vs. a Traditional Sale? 

You’ll need to pay the auctioneer’s costs for selling your property. The different ways that auctioneers in Chicago get paid include straight commission, hourly, or a flat rate.  

Using the example of a straight commission method, A typical auctioneer’s commission percentage would be 15% on the gross proceeds. On a property that sold for $100,000, the auctioneer would make $15,000. 

The average real estate commission in Illinois for a traditional sale is 5.2%. The seller is usually responsible for this fee, which gets deducted from their sale proceeds at closing. For example, you'll pay $10,400 when your property sells for $200,000. 

Pros and Cons of Selling a Property at an Auction  

Selling your property at an auction comes with pros and cons.  

Pros 

You set the timeline. 

When you list a property on the market, there’s no telling how long it will take for it to sell. If it sits there for a while, you may be forced to lower the price. With an auction, you choose the event’s date. Anyone interested in buying your property knows they will have to participate in the auction to bid on the property.  

They attract highly motivated buyers. 

Auctioning a property typically heightens demand and buyer interest. Those who attend auctions are usually serious buyers like investors and property developers eager to make competitive bids. While bidding wars are possible through a traditional private sale, an intense auction environment tends to fuel heightened competition by design.  

Showing the property is not always required. 

Preparing a property for a private sale can be hard work. You may need to do some remodeling to make it look more attractive or hire a staging company. Depending on the condition, costly repairs may be needed to make it more appealing to buyers.  

Conversely, people who bid on properties at an auction realize that the property is for sale "as-is" and are given extensive property information upfront. Set times to view the property before the auction are also usually available. You don't have to consistently keep the property show-ready or schedule showings through an agent. 

Cons 

Your property may not sell. 

No matter how much you prepare, setting up an auction is no guarantee that your property will sell. You may have no one show up or submit a bid. Of course, there’s always the option of selling your property using another method.  

The highest bid may not be enough.  

Although buyers can get into a bidding war and drive up the price, the opposite could also be true. Interest might be low, resulting in the highest bid falling below the threshold of what you wanted to accept. Depending on how your sale is structured, you can reject the highest bid and hold another auction or sell your property the traditional way. 

Auctions often come with stigmas.  

Buyers sometimes see that a property is being sold at auction and immediately think there’s something wrong with it. In the past, people tended to equate the term “auction” with distressed properties or real estate foreclosure auctions.  

The truth is that all types of commercial properties can be auctioned off. Misconceptions about the risks of buying property at an auction are beginning to change, with buyers now realizing that they can find valuable investments at real estate auctions.    

Pros and Cons of Selling a Property at a Traditional Sale 

Traditional sales also have pros and cons. 

Pros 

You’ll attract multiple buyers. 

The main advantage of selling your property the traditional way is attracting a lot of buyers. The more people that see your property, the more likely it is to sell. You’ll also be able to choose the person you want to sell your property to.  

You should get your asking price. 

If the market is good, you should get your asking price or close to it. You will also have a better feel for how much you’re willing to negotiate.  

Cons 

You’re at the mercy of the market. 

If prices in your area are low, you’ll be lucky to get the asking price. If those depressed prices continue, you may be forced to pull your property from the market and try again later. 

It could take a lot of time. 

Finding the right buyer can sometimes mean waiting for several months. If the property is vacant, you’ll still be required to perform property maintenance without earning rent revenue to offset those costs.  

Agents can be hit or miss.  

Not all real estate agents are created equal, while some can complicate your life more than others. If your agent isn’t doing a good job, you may find yourself working overtime to pick up the slack.  

Considering an Auction Sale? Millennium Properties R/E Can Help 

As part of our Brokerage Services portfolio, Millennium Properties R/E offers live and sealed bid auction services for commercial property owners in Chicago. At Millennium Properties, our team uses both live and sealed-bid auctions to sell all types of properties, from troubled assets to trophy properties and developer close-outs.  

We aggressively market and promote your auction property through digital ads, e-blasts, social media, and other online tools to showcase your property and generate interest from investors and buyers. Contact Daniel Hyman at Millennium Properties today to learn more about the auction process or submit your property for our next auction.