How to Use Round Robin Auctions to Sell Your Investment Properties Quickly (Part 1 of 2)

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42-16238032Round 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?

  1. Day 1-5: Offer your home for 50% of what it’s worth.
  2. Day 4-5: Show your home.
  3. 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?

Stay tuned!

About Author

Shae Bynes is a real estate investor in Sunny South Florida. On her blog, GoodFaithInvesting.com, she provides helpful tips and an inside look at her real estate investing adventures -- obstacles, failures, & successes!

17 Comments

  1. That is really good property advice. I can see how this would have worked five years ago but I like the fact that you can still get an increasing price in this market. I suppose it is down to how desirable your property is and the amount of people you get interested in your property. This also cuts out the need to pay estate agents which as they take a percentage on larger more expensive homes this can be very costly. I am wondering if people have ever revisited their offer and lowered it once negotiations have started and then you are stuck with a dilemma. I have been a property investor for a couple of years and have always sold properties through different means i.e. estate agents, open house etc but never thought about sealed bids at an open house before so I will be giving this a try. I will let you know how it goes.

  2. Thanks Josh!

    Clare, thanks for your comments. For those who are using this technique to identify retail buyers, I think its key to put the best foot forward in making sure its a great experience for a potential buyer as soon as they walk into the door. I’ll have more tips on that in part 2.

    And yes, you cut out the need for the agent which can save quite a bit of money, but of course there are marketing costs to doing it this way as well (which for an investor should be considered when doing a rehab flip budget anyway).

    As for buyers revisiting their offers, it will happen…but typically you’re going to have more than one person with a bid that you’ll be happy with accepting, so its always good to engage your back ups!

    I’ll look forward to hearing your success story when you try it 🙂

  3. Thanks Steph! I appreciate it!

    Dave, I’ve only used this method once personally (so not enough to provide a thorough analysis) however the person who helped walk me through the process has done this numerous times over the past several years..its his favorite way to sell a house that has been rehabbed. I will definitely be doing it again after we complete our next rehab.

  4. Nice property.I am wondering if people have ever revisited their offer and lowered it once negotiations have started and then you are stuck with a dilemma. I have been a property investor for a couple of years and have always sold properties through different means i.e. estate agents, open house etc but never thought about sealed bids at an open house before so I will be giving this a try. I will let you know how it goes.Thanks.

  5. I put two houses up for sale using Bill’s 5Day sale method. On the first, thought the response was wonderful, the highest bid was way short of reasonable market value. I moved into it, and put my former residence up. No response to it at all. I did sell it, for less than market value, but really did not want to rent it.

    There is a website regarding this method,
    http://www.howtosellyourhomein5days.com/

    I sold my house at 12% less than asking, which is better than what many recent members have implied their highest bids are. An agent would take about 6%, adn do all the advertising. I chose this method of selling oven using an agent only because I refused to be tied into the contracts being offered here locally.

    You all need to remember that people sell at auction hoping/expecting to get a higher price, while people BUY at auction, hoping/expecting to pay much less than market value. And typically, for the houses in the recent market, few of the members have come close to what they want or need, and did not sell.

    The bids in this method are NOT sealed. They are on a sheet of paper for everyone to see. Everything is transparent and right out in the open.

    The advertising method is changing. If you read the archives of that forum, you will see few people having success with newspaper advertising. Using internet sites (I had ONE response from Craigslist for my second house) bandit signs, fliers to the local area, etc have been more successful.
    Using this method, people do not “lower” their offer, they drop out of the bidding.
    His book, even his website, gives info on how to do this. The book is availabale at local bookstores, and I think is about $15.00.
    Even if one decides to sell standard FSBO, wwhich is how I did sell my house, the abook gives all the info –or most of it–on how to do that.

    For up to the minute info on these sales, go to the website and read the recent activity. Then go back into the archives.
    IIRC, many people who have sold recently have taken a huge cut from their listed/hoped for price.
    I won’t rain on your parade by answering your last question generally, but in my two cases, as I said, on the first, 30K less than lowest expected market sales price, I moved into it. On the second, 20K less, because I really did not want to rent, I did sell, only because the buyers increased their offer by 6K, and I had been considering lowering my price. If they had not, I would have rented it, and planned to keep it rented for at least 3 years.
    People doing this are to make clear that the bids are OFFERS, and nothing is binding until papers are signed. I had that on every piece of paper so that no one could come back later and say they did not know. I did not advertise mine as “will be sold to highest bidder,” but rather, “will be OFFERED to best bidder” I made it very clear that there was a reserve price (in accordance w/state law)that unless specifically noted that there is no reserve, there is a reserve.
    Ofgift

  6. Hey Ofgift,

    Great input – thanks for sharing. In fact, you stole some of my thunder for next week’s follow up post! LOL!

    In the meantime just wanted to say two quick things:

    * I completely agree about the advertising methods…the classified ads just don’t work anymore and glad that people are talking about that.

    * For private sellers trying to sell a residence that may have little to no equity in this market, this method can present its challenges for sure. For rehabbers (the primary focus of this article), if they focus strategy on buying low, staying within budget on rehab that allows them to provide GREAT value (better features than other homes nearby) for a competitive expected price, this can work really well!

  7. Quick addendum: Classified ads (print or online) don’t work alone! But if you get them for free or really cheap, they are worth doing but just not as the primary advertising method. Will be talking more about this in part 2.

  8. I sold my house at 12% less than asking, which is better than what many recent members have implied their highest bids are. An agent would take about 6%, adn do all the advertising. I chose this method of selling oven using an agent only because I refused to be tied into the contracts being offered here locally.

  9. You might have heard about several rousing rags to riches tales of people who have managed to rake in millions through astute real estate investments. It’s true that the real estate market has immense profit potential and is probably the safest investment option around, bearing in mind the recent hiccups in the stock market

  10. This is a great blog post!

    Did part 2 of this materialize? I have a flip property that I’m having a hard time selling (time of the year doesn’t help) and am strongly considering the auction format.

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