Has anyone tried the "public bid sale," aka "round robin auction" or 5-day sale method?

Question

Many real estate courses talk about this in some iteration or other. a realtor Calvin Curry is promoting his "sold-in-a-week" method based on the same concept. I got books by Bill Effros and William Bronchick that outline this method. I just tried it this weekend for a wholesale deal I locked up but the result was a bit underwhelming: 3 families showed up Saturday and one of them put in a bid that was lower than my contract price with the seller. I'm kind of wondering what to do next. I am looking to close quickly but I can't sell at a loss. :) Has any one tried it and did you have success with this method?

Don Konipol · Answer

This method was originated by investment banks as a way to get the highest price for large companies.  It was then tried and has been successful for commercial real estate.  I recently put a 12 unit apartment building for sale at the lowest price I would accept - about $40K under market - and had 14 offers, 5 all cash at list price.  In the second round of bidding high offer was $10K over asking.

In order to be successful this method requires that the seller be very realistic as to selling price.  In other words the sales price could be significantly different from what the appraised value is, the seller's opinion of value, or the value of the property if marketed over a six month period of time.  Instead of finding the "right" buyer within six months or a year, this method sells to the high bidder TODAY.  The method in cold or warm markets will yield less then it would using conventional listing methods - in very hot markets it can yield more. One of the main attractions for property owners is to sell now rather than 6 months from now may save significant monthly cash outlay.

The feasibility of this auction method for single family homes is less clear.  Whereas the sale of businesses or commercial properties is to investors, the sale of single family residences is usually to a user.  When buying a home for their own use, a different set of criteria is used than when purchasing an investment property.  I have purchased homes for my own use at prices I would never have come close to being willing to pay for investment property.  So the expectation of price for a single family residence is much higher than it would be for a purely investment property.  Meaning the emotional factor must come into play. Buyers attracted to this auction method are usually buyers in which financial considerations are foremost - they will in all likelyhood not be the emotional buyers who would pay the highest price.

Don Konipol · Answer

Yeah it is much harder to work on residential than on commercial.  However, for this method to work the seller has to be willing to sell below what he would be able to get  by waiting 6 months (or more) for that one particular buyer.  I think of it as  having a quick sure sale but leaving a little $ on the table.  However, if holding property costs you X per month, and selling takes 6 months, than the auction method saves you 6X, which must be accounted for in deciding whether to sell conventionally or using the auction method.

Scott H. · Answer

My brother and I got a pre-foreclosure duplex in Long Beach, CA under contract and tried to flip it out using the 5-Day Sale (it's a book that outlines the strategy).

We didn't end up selling the property.

We think that one of the issues was advertising it for about 50% of what we're hoping to get (which is what the book promotes).  With that particular property, we had a lot of interested parties show up and bid; but they weren't prepared to jump from the $400k advertised to the $800k necessary to cover the loan on the property.

I'm sure the method can work in some circumstances, but we only got the property bid up to about $650k.

Scott

Steve Babiak · Answer

Vikram, a google search for you:
http://www.google.com/search?q=site%3Abiggerpockets.com+Effros

Account Closed · Answer

The latest twist on my bid sale. I advised the buyer to check fir any contractural language that might possibly obligate her to pay a buyer agent commission since the realtor showed her the house back in september. She called him and sure enough he said if she ever buys this house he is owed a commission. I hate to lose the buyer bur I don't want her or me to get in trouble. Meanwhile the original sellers listing agreement says any sale or lease within 120 days of the expiration to any buyer previously shown the house, the listing agent is entitled to collect as well unless a new listing agent with a new broker is in effect. Since I am an agent i could list it myself but I am tempted to sell the buyer a different home to avoid any legal dispute. Any suggestions? I might have to redo the bid sale at a different price point to attract more buyers.

Account Closed · Answer

Thanks for the background on this method, Don. I'm trying to sell the property as quickly as possible and since it was listed for 6 months before I came along I want to avoid having to list it again. Funny thing is the bidders happened to have previously made two offers on the house but were rejected, and I got the property for slightly less than what they offered. My offer to seller was for all cash but these folks want to put 20% down. I have to figure in the transaction funding fee and cost recovery for myself into the price, and I can't do it at the price they are offering. They are still interested but I am wondering how to proceed. I don't want to do the bid sale again for the same property and I don't want to list it. But I don't want to pass by possibly the only people who's been willing to buy this property. :/

Vikram C. · Answer

Thanks, Steve.  I followed your link and found a good explanation here:

http://www.biggerpockets.com/renewsblog/2009/10/22/robin-auctions-sell-investment-properties-quickly-part-1-2/

Vikram C. · Answer

Don, can you explain how this auction method works?

Has anyone tried the "public bid sale," aka "round robin auction" or 5-day sale method?

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