Going Once, Going Twice... Are Live Auctions Fading Away?

The writing has been on the wall—at least on the walls of the internet for several years. Most business activity is being conducted online. The self-storage industry has seen much of their business convert to online, and that includes the business of selling a tenant’s property.

Industry experts say it’s hard to calculate the number of storage auctions held in the U.S. each year, but Neighbor.com estimated 80,000 self-storage auctions are held annually. Tony Johnson, director of sales and operations for SelfStorageAuctions.com in Phoenix, Ariz., estimates that 70 percent of auctions are now held online. “It’s just more convenient for facilities,” says Johnson, “and they typically make more money having more eyes on the auction.”

Cheli Rosa, strategic account manager and auctioneer for Phoenix-based OpenTech Alliance, Inc., notes that the industry has been slow to adopt many online technologies, but the pandemic has sped up the process to convert to online auctions. “There are still some smaller operators who don’t even have a website,” says Rosa. “There are still a lot of facilities using live auctioneers; some are holding fast to that, and some are handling their own live auctions.”

However, even live auctioneers are conceding that live auctions will someday be a dead dinosaur in a digital world. “If we don’t adapt to change in business, we get left behind,” says Jack Ballentine, president and owner of Hammer Down Auctions, Inc. in West Palm Beach, Fla. “Look at what happened to Blockbuster. Those who see where technology is leading us are visionaries. If we don’t grasp where technology is going, we can’t be a viable entity anymore. A lot of people can’t grasp that for some reason.”

One of the reasons many in the industry think some facilities are hesitant to convert to online auctions is they are resistant to change when it comes to technology. However, industry experts say there’s nothing to fear. “It is very streamlined now and really couldn’t be any easier to post online auctions,” says Peter Allen, president of Lockerfox in Cornelius, N.C. “It’s a long way from the old days.”

Online Auctions

Auctions have existed in self-storage as long as the industry itself. Reality television shows such as “Storage Wars,” which premiered in 2010, popularized self-storage auctions. To the average consumer, and maybe to new facility owners, they’re full of drama, colorful characters, and fun. However, those who have been in the self-storage industry know preparing for auctions isn’t fun, and the only drama that typically happens is when a tenant shows back up at the 11^th hour to claim their property.

“When ‘Storage Wars’ came out, so did the people; I was on a property one time until 9:30 at night,” says Rosa. “Live auctions are really tough on the facilities. Auction buyers like to really abuse the bathrooms when they’re on your property, and the facility has to be double staffed.”

Allen says online auctions really have been around since the days of sealed online bids. Rosa, who founded storagestuff.bid in 2014, says the first online platforms was a matter of buying a website and trying to convince operators to move online.

“Facility operators tend to be risk adverse; it’s not on their to-do list to make sweeping changes,” says Rosa. “It was really primitive back then, but now it is fully integrated into the management software.”

In addition to technology advances, COVID-19 put online auctions on the fast track for success, given the lockdown orders that rolled between virus surges. What’s more, many people still aren’t comfortable being in large crowds.

Besides the dirty bathrooms and cigarette butts staff must clean up following a live auction, Rosa says holding auctions online also helps your facility avoid liability issues that can arise when numbers of people come to your property.

Other benefits of online auctions include not having to wait until you have a bunch of auctions to make it worthwhile to your live auctioneer, not having to deal with inclement weather, and avoiding the “parking lot agreements” many live bidders have been known to participate in when they agree before the sale not to drive up the price so they can split the unit. But the biggest benefit, according to experts, is that, generally, more bidders see the units and pay more.

“I’d suggest if facilities aren’t doing it online to take a look; pick a company to go with and they might discover the guy who has been buying units for $30 is taking advantage of you,” says Allen. “You might find that same unit will now net you $200. When you put them online, you generally get real money for it. It does work and there’s a reason. I’ve never heard anyone say they’ve gotten less through online auctions.”

Other online auction experts agree. “I’ve never seen a facility switch to online auctions and say they wished they hadn’t,” says Lonnie Bickford, CEO of StorageAuctions.com and owner/operator of Baton Rouge, La.-based Appletree Storage, who added he just signed a facility that was netting $7 per unit in its last two live auctions. “In the first two online auctions, their units sold for $250 and $600,” says Bickford.   

Auctions 101

Just because you’re going online doesn’t mean you aren’t following the same legal rules. The legal statutes that have applied to your live auctions apply to online auctions as well. While the top online auction sites all have built-in protections that help you follow state statutes regarding lien sales, Scott Zucker, partner with Atlanta, Ga.-based Weissmann Zucker Euster Morochnik & Garber P.C., an attorney experienced in the self-storage industry, advises you not to remove yourself from knowledge of the process. “You may need to answer questions from bidders or winners, and many do come up,” says Zucker. “You’re really working in partnership with the online auction sites.” 

Although the technology has significantly decreased the number of wrongful sale claims in recent years, Zucker advises operators to educate themselves on all the processes in their state regarding self-storage lien sales.

“The biggest liability a facility owner faces is a wrongful sale,” says Zucker. “Not sending the correct letters or meeting the timeframe for sending the letters, insufficiently advertising the sale, or failing to create rules for the sale—all of which could be caused by an innocent mistake, but it’s still a mistake.”

This is the reason Zucker always says, “The best sale is no sale. Everything should be done to work with a tenant to avoid the sale if possible.”

However, tenants don’t always pay and so exists the laws governing self-storage lien sales, which are unique to the industry in that self-storage operators don’t have to seek remedy through the courts to conduct the sale as other businesses, such as multifamily housing, do.

Industry experts explain the National Self Storage Association has worked hard to get this process put into place, so collecting back rent isn’t so expensive and cumbersome for operators.

Zucker says the privilege the industry enjoys not needing to remedy through the courts is one of the many reasons operators should be adhering to all the state statutes when it comes to auctions.

“It’s also important for operators to know that self-storage property doesn’t constitute an abandonment of property. Operators do not own the goods stored,” adds Zucker.

Next, self-storage operators must understand all states have unique statutes for lien sales (except Alaska, which doesn’t have a specific statute for self-storage lien sales), and 40 states have specifically acknowledged online auctions. “None of them have said online auctions are illegal,” says Zucker. 

An owner/operator starts preparing for the possibility of an auction with the lease agreement, which must outline that the property is in a lien holder situation that is activated through non-payment. The lease should also limit the amount of worth on goods stored.

After the lease, the next most important step is customer service and following up on delinquencies. Per Zucker, states generally require that one to three letters be sent to the tenant, which is followed by a prescribed cure period, some sort of public notice process, and that is finally followed by the sale.

Some states allow operators to start the process at 31 days in delinquency, while others require 40 to 61 days of total notification and advertisement before the sale can occur. It’s also important to note that recent changes in laws allow facilities to skip newspaper public notice but may require some other type of notice.

Online Auction Process

Where there were once nine self-storage auction sites, there are about a half dozen major players now. All of them have standard amenities, such as integrating with management software systems, having checks and balances with regards to following state guidelines, and since most of them have been operating for a few years, have developed their own followers when it comes to bidders.

Generally, the process is seamless. Locks are cut. You take photographs of the goods stored (following all statutes regarding entry) and write descriptions. The company opens the auction, specifies the number of days for bidding, collect a deposit, and award a bidder. They then deal with returning the deposit once the goods are picked up from the facility and the full bidding price is paid.

Other things to consider when choosing an online auction company include:

1. Assessing the tiers of cost of “membership” to a site and what those tiers mean to you. Do you have one to two auctions per year, or do you have 10?
2. What fees are assessed per auction and when/if auction cancellation fees apply (in most states, tenants are allowed to pay their bill and retrieve their property until such time as when the winning bidder pays the facility for the goods).
3. How long are auctions up? Many companies have recommendations, so the maximum number of bidders see the auctions, which tends to draw higher bids.
4. Zucker also recommends knowing the bidding and paying process when the sale is complete, as well as knowing what happens in the event the winner doesn’t show to pay and pick up goods within the prescribed timeframe.

The Next Steps

You’ve chosen an online auction company, and one of the best parts is a representative from the company will typically help you onboard your auctions until you become familiar with the process. “Posting your online auction is the simplest part,” says Zucker. “The online auction companies have done a great job in helping operators transition from live auctions to online.”

Still, if it seems overwhelming, Allen says start small. “If you have a dozen stores, just start with two and see how easy the process is,” he says. “Do it a couple of times to get comfortable with it.”

Here are tips form online auction companies that will help make the auction successful:

1. Post it ASAP.
2. Take excellent photos. Industry experts say this is the most important thing to keep in mind. Bickford describes one recent sale in which the unit was so full that it was hard to tell what was in it. “The manager did a really good job of zooming in on some Star Wars, Lord of the Rings, and other collectibles,” he says. “The manager took a lot of photos, and before that auction is over, we’ll probably have 2,000 views. That one will be worth a lot of money, and the advantage here is that no one would have showed up to a live auction with $6,000.”
3. Write great descriptions. While photographs are important, remember your bidders aren’t seeing, smelling, or experiencing the unit in person. Make sure your descriptions are as representative of the unit as possible.
4. Help draw more eyes to the auction by advertising your auctions in your email newsletters and social media.
5. Treat your relationship with your online auction company as a partnership. Use their online tools and resources to help you through the process and answer your questions.