Whether you are commercial real estate investor or a business owners looking to acquire a base of operations, the chances are good that you may run into a bidding war. Commercial properties are hot right now, and attracting buyers at all levels. Before entering a bidding war, it helps to understand the ramifications and potential consequences in order to form a sound strategy.
Bidding Wars Typically Have One Winner…
…and it’s the seller. Bidding wars occur when two or more potential buyers view a property as ideal for their plans, be it to set up operations or to generate revenue. While buyers keep increasing their offers to outdo one another, the seller ultimately comes out on top. One-upping the competition may seem like a personal victory, but that final offer is going to place a lot of profit in the seller’s pocket, and usually exceeds the value of the property itself.
Stick with Your Budget
Every commercial real estate investor starts out with a budget which includes acquisition, closing costs, renovations or build outs, and a bit of a cushion for any unexpected expenses. When a bidding war starts, any offer over your maximum allowable limit for acquisitions will take away from the budget allotted for other aspects. If you find yourself in the middle of a bidding war, and the cost of the property threatens to reach your budget limits, just walk away. There is no such thing as the “ultimate property.”
A Winning Strategy for Bidding Wars
One way to avoid getting caught up in bidding wars is to scout out options. Line up other properties and be prepared to work your way down the list if a bidding war starts. Most potential buyers who get involved in bidding wars have no other options, and are unable to walk away. If you have multiple properties to choose from, it’s a lot easier to bow out of a bidding war to go purchase one of the others.
Cash Is King
If a commercial real estate investor can provide all or most of the asking price in cash, sellers will usually take the offer and put an end to all other bids. If you have a great commercial property lined up, and you foresee others trying to purchase it, the best thing you can do is get your finances together ahead of time to present a cash offer to the seller.
Steadfast Funding Partners is a leader in commercial real estate financing solutions. If you are looking to purchase a specific property, contact our offices to see what funding options are available.