Round Robin Auctions are an awesome way to sell your properties quickly — fully or partially rehabbed homes or even a personal residence — because they create a sense of urgency, generate a lot of foot traffic, and help you to get the best offer that the market demands at that time. While I’ve only done this once, my mentor has done it successfully over and over again for years regardless of the market conditions. It works.
I received a specific request from a BiggerPockets member to review how we did this, and because its pretty long to explain, I’ve decided to break this into a 2 part series.
You may or may not be familiar with Bill Effros’ book “How to Sell Your Home in 5 Days.” The entire premise of the book is that in 5 days you can sell your home at the highest possible price that the home demands, risk free. How?
- Day 1-5: Offer your home for 50% of what it’s worth.
- Day 4-5: Show your home.
- Day 5: Sell your home for 100% of what it’s worth.
There are plenty of details in each of those steps, but that’s the general idea. What we did is not the same exact formula recommended by Effros, however its similar and highly effective.
So here’s how you can do it:
1. Approximately 1 week prior to the auction, advertise the home and the auction event using classified ads in the most popular local newspaper, and more importantly send postcards to homeowners who live within a half mile radius of the property (because they help spread the word to others!). Offer a starting bid price of the home at a rock-bottom 50-60% of the value.
2. Open up the home on Saturday and Sunday for viewing and take bids (even as low as $1 because that registers the potential buyers interest and they’ll eventually have to make a real bid later). Make sure the bid sheet is completely out in the open so everyone can see what the other person bid. No secrets here. Bidders also provide the appropriate phone number to be reached on Sunday night for the Round Robin.
3. On Sunday evening, hold the Round Robin Auction with the bidders via phone. (Note: this can also be done in person – you can have everyone show up at the home on Sunday evening to participate).
So how does this work? Essentially you organize the bidders on piece of paper from highest to lowest and then call each person to let them know what the highest bid is and ask if they’d like to advance the bid by a minimum of $500 dollars ($1000 can work too). Keep re-sorting the list from highest to lowest with each round and continue doing the rounds until you only have one winner left (for us this took 3 rounds and I believe it took about an hour to 90 minutes to complete).
4. On Monday, accept a deposit and sign a contract with the highest bidder! Also consider accepting back up contracts from next 1-2 highest bidders. Be sure to have connections to a solid mortgage broker who can pre-qualify your highest few bidders if they don’t already have pre-approval letters.
Why Monday instead of right away on Sunday night? Primarily, you really want to give the buyer a chance to mull over what just happened and get a night’s rest to avoid buyer’s remorse which would mean later headaches for you. You also have a chance at getting the highest bidder pre-qualified with your broker on Monday morning if necessary before signing the contract.
That about summarizes it!
These types of Round Robin auctions have been done successfully for years across the nation by various real estate investors and homeowners. Again, it’s a great way to create urgency, attract a large number of buyers at once, and sell at the price that the market currently demands.
In part 2 next week, I will provide more helpful tips for the steps outlined above and also answer a question that may very well be lingering in your mind….What happens if my highest bid is for less than I owe on the home?