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This week Bruce interviews Randy and Mike Grigg from Elite Auctions. Randy is the President of Elite Auctions for which Mike serves as Chief Auctioneer. Mike is also current president for the California Auctioneer Association.
Bruce begins by asking Randy how he got involved in real estate. In 1977, Randy had heard in seminars that real estate was the way to go, so he eased into it. He brought his first rental house in 1977, and after that he bought about 2 or 3 houses every year, for 20 years, and then stopped. Randy’s plan for real estate was to buy houses so that he could pay them off and enjoy the cash flow. This has worked well for Randy, and he currently has a few dozen houses that he is collecting cash from.
Bruce asks Randy when he started auctioning houses. Randy says that he started doing auctioning after he decided to stop doing real estate for a while. After getting involved, he decided that he did not like the selling process, because he had a few escrows that fell out. He drove past a house in his neighborhood one day, and he discovered that it was being auctioned. He decided to attend the auction in hopes that he might buy the property. He thought that he might be the only person at the auction, but he discovered that many people were interested in bidding at auctions. The house he wanted to buy went up to full market value, so he thought, “this might be a good way to sell.” This occurred in 2002.
Bruce asks Mike when he got involved in the auction business with his dad, and who the typical selling client was from 2002-06. He says that he got involved in 2002, and that he dealt with a lot of homeowners who were expecting to receive a high offer. In 2004-06 most sellers were astonished by the selling price of their homes. When Mike and Randy got involved in the business, they did it to help investors help sell 5 houses per day, but when other home owners discovered what Mike and Randy were doing many decided they wanted to auction their houses too.
Bruce asks Mike if he gets a lot of exposure from just holding an auction that is successful. Mike claims to receive a lot of attention from his auctions, because many times Mike will have 100 people show up for one house, and some of the participants have houses to sell as well.
Between 2004-06 the typical buyer was an own occupant. The typical buyer showing up now is often a long term investor, and first time home buyers are getting into the market now too. One of the recent changes that have been made to the $8,000 tax credit program is that first time buyers can use their 8,000 $dollar credit as a down payment up front.
The typical selling client that Randy works with right now is a rehabber, or a wholesaler, who understands that if they do not get their houses sold within two months then they will lose their opportunity to gain a profit. Prices went down a great deal.
Mike and Randy have an auction coming up on June 4, which will include houses that they have bought at REDC and Hudson Marshall. They have done minor fixes to them, and they are hoping to gain a profit. They have done 25 auctions within the last 8 months, and most of them are profitable.
Bruce asks Mike and Randy if they have ever had their competitors try to buy their houses, and then resell them for profit. They do not know if that has ever occurred, but they doubt that this has ever occurred, because they fix their houses more than other auction companies do.
Some auction companies host their events in a ballroom setting with a large amount of inventory, but Mike and Randy have taken a different route. Mike and Randy typically sell 3 or 4 houses per day, because they do their auctions at the property they are selling.
Mike and Randy’s advertising has done very well, but it has changed dramatically in the past seven years. They are doing much more internet advertising now. It is more expensive to send letters than to advertise on the internet. Mike believes that their may be a time when they no longer need print media. The newspaper does not work as well in bigger metropolitan areas.
Bruce asks Mike what source he receives his most qualified buyers from. Mike claims that the sign on the front of the property often attracts the most qualified buyers, because those buyers often own property on that same street. When you put the word auction on a sign, people pay much more attention.
Mike usually has two open houses during the week before the auction. Each open house is about 2 hours. The main reason why they have a limited time for viewing each house is to create sense of urgency. They are prepping their mind for the auction, because the house is going to be sold at a specific time and date. Bruce asks Mike if it is important that there are other people present when someone attends the open house. Mike thinks this is very important, because it gives them the idea that they are doing the right thing.
Bruce asks Mike what his main objective is when people call about an auction ad. Mike’s main objective for the initial conversation is to get them excited about the auction, and to get them to come to the open house, so that they can fall in love with the property. He also wants to assure potential buyers that buying from an auction is simpler than buying the normal way. The first call that Mike gets from a potential buyer is the most critical call, because it is easy to lose buyers when they first call for information. A first time participant may be looking for a reason not to attend the auction. Mike has hired a professional to handle most of his buyer calls.
Most people assume that an auction would be held on the weekend, but Mike and Randy are having their auction during the week. They hold auctions on everyday except for Sunday and Monday. They prefer not to hold auctions on Sundays because they do not want to get in the way of anyone’s religious traditions, and on Mondays people are busy preparing for the rest of the week. However, he has attended an auction on a Monday that was very successful. The time that they choose to hold their auctions does not seem to matter too much. There are times when more people will show up for a Wednesday auction than a Saturday auction.
Bruce asks Randy how many bidders are typically needed for a successful auction. Randy has had successful auctions with as little as 3 bidders. He often feels better when there are only about 5 to 10 people attending. There’s been up to 70. Bruce asks if there’s been any issues with appraisals. At one auction, the bank lowered the $10k. They stuck to their guns and the buyer ended making up the difference.
Bruce talks about The Norris Group’s current appraisal situation and how the verdict is still out.
Back to auctions, when Mike starts an auction he often begins by auctioning something small for charity. He does this because it helps new bidders to relax, and it encourages them to bid. It’s an ice breaker.
Bruce asks if people ever forget about the buyer’s premium. About half of the time, people forget about the buyer’s premium. This still occurs even though they disclose it in all the written terms, and it is disclosed before all the auctions they do. Even Mike has forgotten the buyer’s premium, because there are many times where people come to an auction not thinking about the buyer’s premium; they are thinking about winning the property they want to bid on.
Bruce asks if Mike can tell when buyers feel remorseful over their decision to buy. Mike can tell when people feel bad about their decision because they do not look excited. This is why Mike does his best to make people feel comfortable when they buy his properties. He does his best to answer his buyer’s questions.
Mike believes that receiving a healthy deposit for the closing of a property is of key importance. In this market, you cannot come out and tell people that they need $15,000 dollars for them to bid, because you will knock out all the first time home buyers. On a single family house in Bakersfield, Mike and Randy will often ask for a $5,000 dollar deposit, because it is enough to encourage people to close the deal. Mike and Randy close about 95 percent of their escrows during the first try.
Bruce asks Randy to describe the perfect seller to have as an auction client. Randy thinks that the perfect seller is someone who works with wholesale properties. Those kinds of people have reasonable price expectations, because they often buy at the right price to flip it, and they are willing to pay for the marketing cost with the expectation that Mike and Randy will make them a profit.
The number for Elite Auction is 661-325-6500, and their website is www.sellwithauction.com
