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 operatorseven those with only a few units in liento 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 dont 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.
Youre 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 filenot to pay the winning bid, but to pay the bidders 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 doesnt 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 buyers 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 youre 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 its 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 thats 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 shouldnt 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 its 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 youre going to use an online-auction service and youre 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 theres 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.
Its questionable whether online self-storage sales are really legally permissible in about 30 states. Its probably the example of a better mouse trap around which the laws have not yet grown up. It just isn't absolutely clear that online auctions are legal and permissible in the self-storage application.
For now, if youre in a state with restrictive statute requirements and you're interested in an online-auction service, ask a lot of questions and understand that no provider is going to guarantee that an online sale is legal in your state. You may feel youre reducing a lot of stress and business problems by going to online auctions, but understand that youre also taking a calculated risk.
Disclaimer: Jeffrey Greenberger is legal counsel for Storage Battles, an online-auction service serving the self-storage industry. This column is for the purpose of providing general legal insight into the self-storage industry and should not be substituted for the advice of your own attorney.
Jeffrey J. Greenberger is a partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati and is licensed to practice in Kentucky and Ohio. Mr. Greenberger primarily represents the owners and operators of commercial real estate, including self-storage owners and operators. To reach him, call 513.721.5151; visit www.selfstoragelegal.com.
Insider Insight to Online Auctions
Inside Self-Storage asked Jim Grant, president and CEO of StorageBattles.com, an online-auction website serving self-storage businesses, for insight to the process.
What happens if a buyer doesnt remove the property from the facility after winning the bid?
To ensure proper cleanout and removal of the property, a cleaning deposit is taken by the facility before allowing access to the auctioned unit. Upon satisfactory cleanup, the deposit is returned. It has been hypothesized about what would happen if the winning bidder does not pick up his belongings. The storage facility can choose to do one of three things:
- Accept the second highest bidder, which is usually within $10 of the winning bid
- Reschedule the auction
- Charge the bidder's credit card for the full amount of the winning bid, with the proceeds being sent to the storage facility as payment
At StorageBattles.com, the bidder would be subject for removal from participating, and the storage facility would treat the unit as forfeited.
How do you address seller concerns that providing photos of unit contents in advance of the sale could potentially attract thieves?
We dont think having the pictures online attract thieves. Weve never had a problem with a break-in after conducting the thousands of auctions weve had. Maybe its because a storage facility does have security, whether it be perimeter walls, gates, cameras, door alarms, access codes, locks on the units or management.
A list of items must be stated in the notifications ahead of time, either in an online auction or onsite auction. After a unit's lock is cut at an onsite auction and the people can see the items, does that entice the losing bidders to come back and break in? Probably not.
Also, it would be difficult to know which unit the product is in, as the unit number is not listed on the Web page. The facility enters the unit number into the system so it can track the sale, but it is not listed on the Web page. The buyer only knows the unit number after he wins the unit and pays for it in cash at the facility.
On another note, while talking about security, online auctions are much more secure for all the buyers. At a live auction, people show up with thousands of dollars in cash, as that is the requirement for purchasing a unit. We see them on Storage Wars flashing all that money. Eventually, someone is going to show up and either rob the entire crowd or follow someone out of the parking lot and rob him as he drives home. With online auctions, the only person who shows up to pay for the unit with cash at the facility is the buyer, and no one knows when this will be except the facility manager.