Round Robin Auctions
It is the best of times and the worst of times! Yes, everyone can agree that in almost all areas in the country it is a strong buyer’s market − the best of times for buying property at big discounts. But it’s also the worst of times when it comes to selling those same properties. The old rule of buying low and selling high doesn’t work in a buyer’s market. You must buy even lower and sell low. And even then, you have to be creative in how you sell.
There are many different ways you, as an investor, can sell a rehabbed home. Traditional selling methods include:
• Sell it yourself using yard signs and newspaper advertising – For Sale By Owner (FSBO).
• Sell the property using your own buyer’s list. This is one of the best ways to sell a home since you can have a home pre-sold before you even buy it.
• Hand out fliers in the neighborhood asking the neighbors to invite their friends to look at your home. This works well if you have developed a good rapport with the neighbors and have let them know that you are working to beautify their neighborhood and want someone special to buy the home and take good care of it.
• Sell the home to another investor. This will work if you bought the home at a big enough discount and are willing to share a good portion of your profits with another investor.
• Sell the property using another investor’s buyer’s list. It really pays to belong to your local Real Estate Investor’s Club and build relationships with other investors.
• List the property with a real estate agent who will put the home on the Multiple Listing Service (MLS).
• Put the home in one of many For-Sale-By-Owner publications. Some of these services will also put the home in the MLS.
• Run an ad on Craig’s List and other Internet ad sites.
All of these methods work to a certain degree, but there is one method that is becoming more popular every day, and if done right, can bring top dollar for a property, even in a tight buyer’s market. That method is the Round-Robin Auction.
I’m not sure who originated the Round-Robin Auction, but I first became aware of it several years ago when I ran across a book by Bill Effros, called “How to Sell Your Home in 5 Days.” This book was first published in 1998.
The 5-Day Method outlined in the book consists of the following steps:
1. Run an ad (like the following ad) in the classified Homes for Sale section of your local newspaper.
FARMINGTON BY OWNER
6 Br. 4 bath 6,200 Sq. Ft. 4 Fireplaces
Pool 2 Family Rooms 2 Full Kitchens
$299,500 or Best Reasonable Offer
Inspection Sat.-Sun. 10-5
Home will be sold Sunday Night to the
HIGHEST BIDDER (890) 123-4567
2. Answer the telephone
3. Show your home on Saturday and Sunday from 10 a.m. until 5 p.m.
4. Sell your home Sunday night to the highest bidder using a Round-Robin Auction.
That’s it…sounds simple enough, but, as always, the devil is in the details and it’s the details that will make this basic system work well or flop.
First, what is a Round-Robin Auction? It’s different from regular auctions where people are gathered in a room and an auctioneer rattles off numbers and encourages higher bids as the people in the room fight with one another to see who gets the property.
The Round-Robin Auction starts with a bidder’s list that has been generated at the open house. At the time of the auction, the people are not at the property, but in the comfort of their own homes. Let’s say that 10 people put their names on the bidder’s list with their initial bid for the property. At the appointed time Sunday evening, the person running the auction calls the person on the list with the highest bid, lets them know that they have the highest bid so far and asks them if they want to bid any higher. If not, their bid stands as the highest bid. The person with the next highest bid is then called and told what the high bid is and asked if they want to bid higher or drop out of the bidding. If they want to bid more than the highest bid, their bid is now the high bid and they stay in the bidding process. If they don’t want to beat the high bid, they are dropped from the bidding process and cannot re-enter the process.
The calling continues until the highest bidder is found. The highest bidder is then notified and arrangements made to get together to sign the formal purchase and sale agreement and schedule the closing. The second highest bidder is also notified that they were the second highest bidder and told they still might get the property if the winning bidder is unable to finish the deal.
I have also seen Round-Robin Auctions run by having the interested bidders gather Sunday evening at the home for the auction. But the more common method is to call people on the phone. It makes for a more relaxed, less stressful atmosphere for the bidders.
There are several things working together that make this an effective selling technique. As with most things associated with real estate investing, the key is really good marketing. What you are trying to do is to get lots of people interested in the open house on Saturday and Sunday. Most of these people will just be curious about what is going on, but among them will be a few serious buyers. You need to identify those serious buyers and make sure they sign the bidder’s sheet before they leave.
So what can you do to get people to the open house? How to Sell Your Home in 5 Days mostly discusses running newspaper ads, but in today’s high-tech world, there are lots of ways to get the word out, also many effective low-tech techniques. Here are a few suggestions on different forms of advertising to help to get the word out:
• Do run newspaper ads. The key is to have an asking price low enough to catch people’s attention. You want people to think, “How could they be selling a home for that low price?” You want people to call so they can be encouraged to come to the open house. Effros’ book says run the ad starting just five days before the auction, but some run their ads up to 10 days before the auction.
• What could be lower tech than flyers or postcards? Distribute at least 2,000 fliers five or six days before the auction to immediate neighborhoods to generate as much traffic to the open house as possible. A lot of neighbors will come just to see what’s going on, but lots of traffic at the open house is what generates an exciting atmosphere.
• Run Internet ads on sites such as Craig’s List. Don’t miss this opportunity to generate even more traffic to the open house.
• List the home on several For-Sale-By-Owner websites. You also want to list the property on the MLS. Some of the FSBO publications and websites will list the property for a flat fee. Key words like auction and motivated seller will attract attention. It may be helpful to specify that this is not a foreclosure auction.
• Signs – lots of signs. On the two open house days, place numerous open house signs throughout the neighborhood giving directions. These signs should also have in big letters, AUCTION. You want to catch people’s attention. You could also put out bandit signs a week before the auction, depending on the signage laws in your area.
Your ads and signs could have your cell phone number and you would be very busy answering calls and telling people about the details of the auction and open house. But, with today’s high-tech systems, it would be smart to have a 24-hour message number on your signs so that interested individuals receive a professionally recorded message with the details of the auction, the times of the open house, and directions to the property. These phone systems also capture the phone numbers of everyone calling. You would then be able to have the phone system call each of the captured numbers the day before the open house to remind them to come and see the property. Why not go high tech? It’s really not that expensive.
You also should set up a selling website with all sorts of pictures and videos of the property. The 24-hour recorded message can direct them to the website. It’s best not to put the website address in your ads or on your signs or you won’t be able to capture the phone numbers. Or you could have a website with a capture page that requires a first name and an e-mail address to access the information, but a lot of people might not opt in and you risk losing potential visitors.
It goes without saying that before the open house, the property should be in pristine condition. Spending the money to stage the home is money well spent. There’s a lot of information available on staging homes and there are professional services that can do the staging for you.
It is helpful to get a good appraisal on the property and have it available for viewing at the open house. It also pays to get a complete home inspection report and also have the report available at the open house. The auctions I attended had two tables set up, one with the appraisal and one with the inspection report. Of the possibly hundreds of people who come through the open house, usually only those who are serious bidders will stop and take time to look at these documents. Make it a point to meet these people and get to know them. They will most likely be the ones bidding in the Round Robin.
When people show up at the open house, give them a bidder’s packet that explains the details of the auction. You need to have several people helping with the open house so questions can be answered. At the home’s exit, there should be a table with the initial bidding sheet. People should be encouraged to place a bid, even if it is a very low bid. Let people know that in order to be included in the Sunday evening auction, they need to have their name and phone number on this initial bidding sheet. Serious bidders will leave an initial bid on the sheet.
Leave several hours between the end of the open house on Sunday and the start time of the Round-Robin Auction. This gives you time to review your notes, have a nice dinner and relax before the excitement begins. Then at the appointed time, with the initial bidding sheet in hand, start calling. If you have generated enough interest to have lots of people at the open house you will have lots of interested bidders and, even though you advertised a low-starting bid, the bidders will bid the price up to a reasonable number and many times to a price that is much higher than you would have expected. Bidding continues until you have the highest bidder. From that point on, the sale is like any other sale. A purchase and sale agreement is signed listing all the specifics of the transaction and setting the closing date. Home sold!
People using this Round-Robin Auction technique sometimes worry about the bids not getting to a price at which they are willing to sell. This rarely happens if you have enough bidders. Unless you have advertised that there is no reserve, you can opt not to sell your home to the highest bidder if the bids don’t reach a point at which you are willing to sell. Bank-run auctions function this way. The bank has the final choice to either accept the highest bid or to not sell the property. You, as the homeowner, have this same right. However, it is always wise to check with your team attorney to make sure you are complying with any state laws pertaining to real estate auctions.