A new service has developed within the self-storage industry: online auctions. I'm not referring to services that place online advertising for your live, onsite lien sales. An online auction actually opens up your lien sales to the entire Web by allowing bidders to register, view sales at your facility, and participate in a sale that occurs online.
Before a self-storage operator explores this new offering, he should consider the pros and cons as well as the legalities involved.
One of the most obvious advantages to using an online-auction service is people can attend several sales in multiple locations at the same time. This has the potential to allow self-storage operators—even those with only a few units in lien—to draw the kind of high-paying buyers that will generally only attend a sale with multiple units or a facility in an affluent neighborhood.
Other operators enjoy that they don’t have to open the gate and allow people to walk around their property and scope it out; nor do they have to delay the sale while everyone gets their chance to look into the unit.
You’re also potentially dealing with a more secure method of getting paid. In theory, buyers have pre-registered with the auction service and have a credit card on file—not to pay the winning bid, but to pay the bidder’s premium to the online-auction service. However, should the buyer fail to collect his goods, you may have a credit card against which you can charge for the expenses you incur for reselling the unit. In addition, there are more “backup bidders” registered in case your initial sale doesn’t properly consummate.
Of course, there are also disadvantages to using an online-auction service, not the least of which is the winning bidder may fail to appear and collect his property or pay you after the auction is won. I mean, how realistic is it that a winning bidder in Kansas is going to drive to Georgia for a 5-by-5 unit on which he euphorically bid but then got buyer’s remorse?
With an online auction, you have a little less control over the quality of the cleanout and removal of the property. You also have less negotiating power with the buyer if something was sold in the auction that that shouldn't have been. There are also some who contend that you never get as much for the property online as you could get during the excitement of a live, face-to-face public sale or auction.
The final obvious disadvantage of using an online-auction service is you’re posting pictures of goods that will not be sold for a period of time; you might also be posting unit numbers. If there is exciting property in the unit, it might be attractive to potential thieves. This is vastly different than unveiling a unit and its contents at a live auction.
The real crux of the issue is whether it’s legal to have an online sale in your state. A lot of self-storage statutes are creatures of the '70s and '80s. While many states are updating these laws, one section that’s not being addressed in most states is the one that requires that a sale occur at the facility or the nearest suitable location, or that operators provide in the notice a specific date, time and location for the sale. If one of these two requirements is in your state statute, you probably shouldn’t use online auctions.
There are 19 states in which the statutes do not contain these requirements. In these states, online sales would appear to be possible. In the others, you must at least question whether it’s possible to have a legal online sale because of these restrictive requirements.
The original reasons for requiring that sales take place at the self-storage facilities themselves and that operators give notice of the time, place and date of sale appear to have been:
- So the tenant would know the “drop dead” moment by which he could pay, redeem his property and avoid a sale.
- In most states, to give the tenant the opportunity to be present at the sale and bid on his unit, even if he won it for less than he owed.
- To allow the tenant to know who bought the unit so he could potentially repurchase some important pieces of property without having to pay for the whole lot.
Statutes in approximately 30 states are not sufficiently up to speed for me to be comfortable that online lien sales, although potentially fetching higher dollars, meet the statutes' current requirements.
If you’re going to use an online-auction service and you’re in one of the states that has one of the statute requirements referenced above, make sure the auction provider has taken all possible precautions to leave you a way to pull a sale up to the final second before a winning bidder is determined. There should also be provisions to delay a sale in the event there’s a controversy. You must also take your own precautions to ensure someone is available to see the tenant arrive at the time and place of the “cyber sale” and stop proceedings if necessary.