By Lee Leslie and Adrian Strelzow

On a scorching summer day on the Las Vegas Strip, the dust was still settling from the implosion of the Riviera Hotel just hours before—a dramatic final chapter for that iconic building. But for the Desert Marketplace property just a few miles west of the Riviera, a new chapter was about to begin.

Clark County, Nevada, which owned the ground-leased Desert Marketplace, was selling the property in the county's first-ever online real property auction.

Shortly after 1 p.m., the Clark County Board of Commissioners called the auction meeting to order and declared, "1 minute 20 seconds to liftoff . . . 50 seconds . . . 30 seconds . . .," and then it began, the county's first online auction of real property in which bidders could participate from anywhere in the world, either live in the air-conditioned chambers of the board of commissioners or by a smartphone in Hong Kong.

After the dust settled, the Desert Marketplace was sold for nearly $5 million, $360,000 over its appraised value.

Unique Challenges to Sellers

Governments face unique challenges when selling real property, especially when their portfolios contain such older and unusual properties as school buildings, court houses, hospitals, and military installations. The specialized nature of these properties may limit the market of prospective purchasers.

Also, government real property sales are often subject to a cumbersome legal process. A government seller, for instance, may be required to offer the excess property to other governmental entities, then comply with rigid notice periods and sale timing, before finally conducting a live public auction at an administrative meeting.

Advantages of Online Auctions

The Internet has revolutionized auction sales of real estate, empowering people to safely and easily view and buy residential and commercial property from nearly anywhere in the world. Because the market for potential purchasers is not just local, but national and international, online real estate auctions enable property owners to access a larger and more diverse marketplace than a typical offline sale.

In fact, when commercial properties are marketed through an online auction platform, it is commonplace for the majority of bidders to reside outside of the state where the property is located. Because properties owned by governmental entities often contain unique characteristics and must follow specific marketing and selling procedures, expanding the pool of potential buyers can be critical to ensuring a successful transaction and maximizing the proceeds received.

Online auction platforms can generate these benefits to the government seller:

Greater transparency. Online auction platforms provide a single marketplace that exposes prospective buyers to multiple offerings, enabling market comparisons to be made quickly and easily. Due diligence materials, notices, disclosures, transaction documents, and additional property information are posted for public review. The convenient access to detailed and accurate information benefits all bidders, particularly potential buyers that are not based locally.

Online auction platforms also provide the seller with critical real time data regarding marketing and bidder activity, among other things. This information not only informs the seller as to the level of interest in a particular property, but it also helps ensure the government that the market truly has been addressed.

Increased number and quality of bidders. Online auctions allow local, national, and international real estate buyers to access a simple and convenient marketplace, resulting in a higher number of qualified bidders.

This enhances the certainty of receiving offers that meet or exceed the terms and conditions specified in the government resolution authorizing the sale.

Increased efficiency. An online auction reduces the time period for completing a property sale, streamlining the processes for open house tours, due diligence, and closing, thereby reducing the seller's carrying costs. Depending on the seller's preferred timeline, a typical commercial sale will be completed approximately 90 days after the seller engages the auctioneer.

These auctions, conducted on the basis of an "as is, where is" sale, are also beneficial to government sellers who want to limit any expense associated with addressing—or post-sale liability for—environmental or structural conditions.

Simultaneous Online and Live Auctions

When a government conducts a public real estate auction, the law generally mandates a live auction at a specific location with multiple procedures regarding notices to potential bidders and auction day operations. To take advantage of an online auction platform, the government's auctioneer must conduct a live auction simultaneous with the online auction.

To accomplish this, the government enters into an agreement giving various authorizations to the auctioneer, including the right to (a) market the property to the general public, subject to any pre-established terms; (b) receive all sealed proposals from potential buyers, assuming the statute mandates sealed bids in advance of the auction; and (c) conduct the live/online auction at the government-mandated location.

Bids from online participants are read into the record at the live auction, while bids occurring at the live auction are posted to the online auction platform, thereby allowing all bidders to respond to one another in real time.

The highest bid on the property, assuming the bid is a conforming offer from a financially responsible party, will win the auction and enter into a contract for purchase immediately following the auction.

Lee Leslie is chief legal officer, Ten-X, LLC/Auction.com, Irvine, California (leslie@ten-x.com), and Adrian Strelzow is supervising broker, Ten-X, LLC/Auction.com (astrelzow@ten-x.com).