Look Who’s Talking – Peter Allen, CTO, Lockerfox

Over the past several years, state self-storage associations across the country, along with the national Self Storage Association, have been tirelessly lobbying for the modernization of archaic lien laws. The associations’ legislative efforts include several modifications aimed at making the lien sale process less restrictive and less costly for self-storage operators through online advertising instead of newspaper advertisements and verified mail instead of certified mail.

They also seek to provide operators with the ability to hold auctions online as opposed to at the facility. While there was never a stipulation that prohibited online auctions, the original lien laws were passed long before the internet existed. Therefore, to prevent possible litigation from claims a wrongful sale, the updated lien sale legislation simply clarifies that online auctions are permitted.

Their efforts have been successful in most instances, with approximately half of the states enjoying reformed lien laws. Today, while more and more self-storage operators are taking their facilities’ auctions online, including real estate investment trusts (REITs) and large operators, others are still assessing the various options as well as the benefits and drawbacks those choices present.

According to Peter Allen, CTO of Cornelius, N.C.-based Lockerfox, an online storage auction site that was founded in 2014, although the hesitation to utilize auction websites is fading, smaller operators are still unsure about how to get started with online auctions. “Operators are more accepting of them now,” says Allen. “It’s just a substitute for the live auction part.”

Alleviating Auction Issues
Online storage auctions can make selling delinquent units a more efficient and cost-effective process, especially for small operators that may find it burdensome to conduct on-site auctions. For starters, online auctions reduce the hassle and liability of lien sales. Whereas accommodating bidders for on-site auctions can be problematic for small facilities without adequate space, since crowds can make conducting regular business difficult for customers and tenants. Plus, those bidders could cause accidental damage to the property or suffer from unforeseen injuries—either of which would result in additional expenses for your self-storage business.

Nevertheless, as Allen notes, it may be hard to attract potential bidders to an on-site auction if you only have one or two units to sell, which may be the case for facilities with low delinquency rates or smaller facilities with less units. Comparatively, online auctions have an expanded customer base; therefore, the unit you are selling will most likely be seen by more bidders and could yield higher returns through more bids.

Besides keeping your site free and clear, online storage auctions also eliminate many of the uncontrollable situations that can arise before or during an on-site auction. For instance, the weather is no longer a consideration, since potential buyers can place bids from the comfort of their own homes. Online auctions don’t have to be delayed due to traffic or rescheduled because an auctioneer has fallen ill; they start when they are posted to the storage auction website and end when the predetermined length of time has elapsed. “Weather is irrelevant,” Allen says. “Traffic, illness, etc., are not applicable with online auctions.”

Additionally, auction websites offer various tools to streamline the auction process. For instance, some provide integration with management software to reduce the amount of time spent on data entry. This integration enables the delinquent units to move from the management software directly into the online storage auction system. Auction websites also offer lien sale notifications, reporting options, public notices, printable buyer’s receipts, and other useful features. 

Downsides Of Online Auctions
Despite the concrete benefits of online storage auctions, Allen is quick to state that they aren’t the Promised Land. “The truth is: It’s an alternative,” he says. “It’s not without it’s challenges.”

Allen brings one challenge to light that can be difficult to attend to with online auctions; he calls it a mistrust of bidders. Unlike a live on-site auction, where locks are cut off the door hasps in front of the bidders, units being sold via an auction website are typically photographed, which means the locks are cut in advance. Since the bidders aren’t present for the lock removal, suspicions can arise about whether the facility’s staff have rummaged through the unit to remove items of value.

To keep these concerns at bay, Allen suggests that operators use lock tags over the clasp and reinforce that the units aren’t entered. Remember to always follow this rule when taking photographs of a unit’s contents: Never cross a unit’s threshold. If you never enter a unit, you can never be accused of wrongdoing. Allen also emphasizes the importance of posting accurate photos that match the unit’s contents. Obviously, the surest way to build distrust with winning bidders is for photographed items to be missing from the units when they arrive after buying them. “It’s essential to maintain your integrity,” says Allen, who adds that the bidders are also your customers. “They deserve to get what they paid for.”

Another note about upholding your facilities integrity: Because online bidders cannot use all their senses before placing a bid, it would be courteous to post anything that may result in unhappy buyers after the sale. For instance, if there is a strong odor emanating from the unit, be considerate and disclose that information. You should also request that buyers return any personal/confidential items found within the units to the facility office.

Online auctions also pose a potential problem when it comes time for bidders to pay for the sold units. While live on-site auctions require winning bidders to pay for the units at the end of an auction, storage auction websites do not yet accept payments from winning bidders for the units they purchase. This creates a “time lapse”—or an opportunity for delinquent tenants to pay their past-due balances and reclaim their stored goods before the winning bidders arrive at the facility to pay for the auctioned units.

“This can put a facility in a tight spot,” says Allen, who adds that self-storage managers typically form relationships with tenants and are likely to allow them to settle their balances. “Both tenants and bidders are customers of the facility and should be treated equally.”

However, in order to avoid potential lawsuits from wrongful sales claims, self-storage facilities usually side with the tenants. Even though that is a safe route for the facility to take, it can leave bidders bitter and uninterested in participating in future auctions. Having a protocol in place—and enforcing it every time—is the best way to handle this kind of situation.

Allen also mentions that storage auction websites may accept payments from winning bidders on behalf of the facilities in the future, which would eliminate that problematic time lapse.

Last but not least, online auctions can be somewhat tricky for unmanned facilities. “Coordinating pickups can be a challenge,” Allen says. To make the process more seamless, he suggests utilizing smart locks that would enable winning bidders to access the units with their mobile device. Once the buyer has emptied the unit, the facility operator can revoke their access.

Operational Considerations
In addition to the pros and cons of online auctions, there are a few items that operators must mull over regardless of whether they have on-site or online auctions: “garbage” units, dumpsters, and renting to winning bidders. Allen describes “garbage” units as the ones filled with mostly trash and/or items with no value. “It’s up to the facility to decide whether to post the unit,” he says, noting that the unit may not sell if it’s posted. While most auction websites do not charge the facility a fee for units that do not sell, simply disposing of the junk and taking a loss may be a more effective option than repetitively posting a garbage unit.

That issue ties into the dumpster dilemma that self-storage facilities often face. “It’s not a disposal service,” states Allen, adding that winning bidders may attempt to leave the items they don’t want behind. Remind your auction buyers that they are responsible for removing all items from the premises and sweeping the units. If you have a dumpster on site but do not want buyers using it, make that known. Some operators post signs on the dumpster stating that only staff is allowed to use the dumpster, while others keep it locked up and/or have a security camera monitoring it to prevent dumping or dumpster diving. 

With online auctions, your facility may end up re-renting the sold unit to the winning bidder, especially if that buyer must travel to reach your property. “When renting to an auction winner, you run the risk of them becoming delinquent or leaving trash behind,” Allen says.  Therefore, operators should discuss the unit rental options with auction buyers at the end of the sale to ensure that they understand their obligations. You can offer a rent-free grace period that provides them with a few days after the sale to empty the unit, charge a predetermined deposit that isn’t returned until the unit is emptied, or require them to pay a rental rate for the unit. Whichever option you choose, make sure it’s consistent.   

The Takeaway
Clearly, there is no “one-size-fits-all” solution for self-storage auctions—none are without their faults. For this reason, Allen advises operators to review the options, try different auction vendors, and choose the one that “works best for your business and how you operate”. And above all: Be sure to meticulously follow your state’s lien sale laws before you sell any units.