Ah, the intrigue of the self-storage auction. Bidders love them for the get-rich-quick thrill of the hunt, fueled by the popular “Storage Wars” reality TV show.
What about storage facility operators and managers? Most would rather face root canal surgery than the massive headache of the lien sale process. Whether it’s following state laws to the letter to prevent post-sale litigation, shelling out for the auctioneer or enduring the mini-invasion of bargain hunters on sale day, auctioning off the questionable treasures from a tenant’s unit rarely seems worth the time and effort.
No longer a losing proposition
“The great thing about them is, half the tenants pay up before auction, a quarter make you a deal, pay half and leave, and so you only end up actually auctioning a quarter of them,” storage operator and consultant Marc Goodin said. “Before ‘Storage Wars,’ auctions were a real losing proposition. At least now you don’t lose money.”
Colorado storage auctioneer Rich Schur credits the TV craze with removing the stigma from storage auctions.
Storage liens have a huge liability attached to them. Management that is not familiar with the process could be in for a world of hurt.
— Storage auctioneer Rich Schur
“Before the TV shows, some facilities managers thought that conducting a lien auction would bring negative publicity,” Schur said. “The shows have brought owners into current times, because now the public might ask, ‘Well, why aren’t you doing storage auctions?’ Managers are starting to understand the lien process and realize that if they don’t sell this stuff, they’ve got a unit sitting there paying zero rent.”
The online option
One other important change has altered the lien sale landscape: online auctions.
Larry Morgan, co-founder and president of Sacramento, CA-based RL Liquidators, which conducts both on-site and online auctions, said online auctions eliminate the single biggest pain of traditional lien sales.
“They don’t have to deal with the crowds on auction day,” Morgan said. “Ever since TV shows like ‘Storage Wars’ came out, the crowds at the auctions have been ridiculous. Most of the people who show up don’t even bid—they’re just there to participate in the circus. Most owners are amazed at just how easy their auction days become by going online. They usually call us and ask, ‘What should I be doing?’ and we say, ‘Absolutely nothing. The only person that’s going to show up is the one who won the unit.’”
Here are 10 ways to make the most of auction days.
1. Learn your lien laws.
Every state has its own laws governing when and how lien sales are to be held, as well as how the proceeds are to be handled. Be sure that the tenants’ rights and responsibilities portion of your rental agreement clearly aligns with your state’s laws.
“If you don’t have that agreement, the lien law won’t help you enforce it because you don’t have anything to enforce,” Schur said. “Storage liens have a huge liability attached to them. Management that is not familiar with the process could be in for a world of hurt.”
2. Be willing to negotiate.
Remember that the purpose of a lien sale is not to secure the balance due on the unit. It’s to vacate the unit legally in the most cost-effective manner so that it can be rented as soon as possible.
“If that means you negotiate down on the amount a renter owes just to get them to clear the unit out, do it—get them out, avoid the litigation potential of an auction and get a new renter in there,” Schur said. “An auction should be your absolute last resort when everything else fails.”
3. Don’t push the clock.
State laws typically provide strict auction timelines, such as 30 days delinquent, to protect a tenant’s rights. Stick to them. “You can lengthen the timeframe, but never shorten it,” Goodin said.
4. Don’t mess with the contents.
Most states require storage facilities to notify delinquent renters of their intent to auction the unit’s contents and include an inventory. To minimize liability risk and avoid turning off bidders who watch for signs that a storage unit’s contents have been cherry-picked, Schur recommends adopting the industry’s “threshold” standard.
“You open the door; you don’t go in, you don’t touch anything, you don’t step over that threshold,” Schur said. “If you do, you create the opportunity for the renter to claim that you damaged or stole their stuff. And how do you defend against that? If you haven’t stepped over that threshold, you have a defense against that claim.”
5. Hire an auctioneer.
For a typical commission of 20 percent to 30 percent, a professional auctioneer will take over the inventory, documentation, marketing, sales and billing functions of your on-site auction. Some facilities group together several lien sales to make the most of an auctioneer’s minimum fee, typically around $250.
6. Try an online auction.
Facilities in remote locations or with only the occasional lien sale can expand their bidding pool through an online storage auction.
“We don’t have auction minimums for our online auctions,” Morgan said. “We’ll come out and do the pictures and video of one unit for $25, and you don’t have to wait to get a bunch of units to run the auction.”
7. Don’t accept a partial payment.
“If somebody who owes you $1,000 says they can’t pay the whole bill but they’ll give you $20 now, don’t do it,” Schur said. “The minute you take a payment of any kind, whether it’s $1 or $999, that lien clock starts fresh, so you’ve just let them pay you $20 and take another month of free rent on you.”
8. Expect online bidders to show up.
Morgan said first-timers always fear that online buyers won’t show to clean out their units. Rest assured—they do.
“That’s never a problem because we maintain pretty strict rules with the bidders,” he said. “We handle all of that on the back end.”
9. Turn removal into revenue.
If a buyer asks for more time to clean out a unit, offer to rent a larger unit at a discount for 30 days. “You’ve just created a client, and they’re going to be willing to spend a little bit more to rent because now they’re not under the gun to move it all out,” Schur said.
10. When in doubt, back out.
“Make sure you follow the procedures in your state; otherwise, you could be held liable,” Goodin cautioned. “If there are any questions on the paperwork, don’t hold the auction on that unit.”
A version of this story originally appeared in Mini-Storage Messenger.