The Norris Group Blog

Elite Auctions Randy Grigg (Full Bio)

This week Bruce is joined by Randy Grigg. Randy is the president of Elite Auctions. He spent 30 years as a pest management consultant, and gained a large portfolio of rental properties during that time.

Bruce begins by asking how Randy’s auction properties get purchased, and what the sellers’ perspective is towards their property values. Randy is soon going to have his largest auction. He has two trustee sale buyers that his company is working with. These two people have 50 unsold properties in their inventory. Most of their properties are lower quality houses. Right now, nice properties in nice areas have more demand. Bruce has noticed that trustee sale properties are typically cleaner than REOs, but the trustee properties that Randy will soon sell are in moderate condition. Some of them are beat up, but their landscaping is still in decent condition.

Many trustee sales are still occupied when the sale takes place. Bruce has noticed there is a common perception that these occupants are beating up the property, but he does not believe this is generally the truth.

Randy has typically been a low volume auctioneer. There are 4 nice properties that he will be selling at his next auction. His two clients will be selling 22 properties with him. This auction will be taking place at the end of January.

The trustee sale business is a highly competitive market, and most of the competitors are educated investors. There is also a much smaller range of profit to be gained in a trustee sale, and this profit can easily be lost in overhead costs. Trustee investors will often buy at 80 to 85 percent of market value with all cash. This is the model that The Norris Group uses, but in order to do that, you must be very good at minimizing expenses. Sometimes a trustee buyer has access to a property on the day he buys it. This allows trustee buyers to quickly plan for selling through methods like auctions.

Advertising has changed since Randy began his auction business. In the past, Randy had to spend $8,000 per house, because the print advertising is very expensive. Recently, people have started searching for properties through the internet. This has made it much cheaper for Randy’s business. His business posts properties to about 100 websites, and then sends emails to 100,000 Realtors.

Bruce once tried selling his properties through auctions, but he discovered that it took a lot of effort. He tried advertising his properties using street signs, and it did not work well. Bruce thinks that he has never worked harder than the 45 day period he spent trying to set up his real estate auction.

When Randy heard that The Norris Group was going to try doing real estate auctions, he was worried at first. Fortunately for his business, it is not as easy as most people think to begin an auction business, and most people eventually fail. There is a costly learning curve that is required for setting up a good auctioning business model. Randy lost 20 percent on his properties when he first started, but that process of trying and failing helped him to learn. There are many ways in which an auction can fail to have a good result. The first phone call that a potential buyer makes can completely lose their interest if they do not receive the proper response. Many people call on auction ads, and they receive a recording.

Bruce attended an auction one year ago in which 93 stilted duplexes were being sold. The sellers had placed their ads in the wrong place of the L.A. Times. Bruce tried calling the company, but all he got was a recording. By the time he arrived at the auction, the seller was closing the gates. Bruce talked to the seller and he discovered that he was the only person who had ever showed up to this auction.

Randy’s auctions are held in front of the home being auctioned. He has to analyze each house individually in order to understand what kind of buyer he wants to attract. If he wants an owner occupant buyer, he always advertises the phrase “45 days to close”. He also tells buyers that if they can close within 30 days then the sellers will agree to pay their escrow fees. The escrow fees are $400, but the cost of holding the home for two weeks is much more. Randy offers a 45 day closing, a free home warranty, and a guaranteed clear title. A home warranty does not cover foundation problems, but it does help relieve some of the buyer’s concerns. People often worry that they will not have a clear title when they buy a property from an auction, so Randy always mentions that they will.

Randy does not invest much time in open houses for his auctions, because he has discovered that establishing urgency is the key. He has a two hour, two day open house which takes place on the weekend. The auctions always take place within the working week.

The key to getting a potential buyer to come to an auction is to make them feel comfortable with the process. Randy usually has a mortgage broker present at the sale. If the buyer has not been prequalified, he encourages them to do so. He tells them that an auction sale is just like a normal transaction except they get to choose their price. You have to make people believe that they can get a good deal at an auction. Randy also offers a cash prize for people who guess what the final auctioning price will be. Their guesses allow Randy to more adequately gauge a property’s true market value. Randy does not hold auctions on the weekend, because holding auctions during the week attracts more serious buyers.

Randy has discovered that his quality buyers in Bakersfield discover his auctions through paper advertisements, because there are a lot of people who read the news there. However, buyers from other areas typically discover Randy’s auctions through the internet. Knowing where your audience comes from will help you to know how to advertise.

Bruce asks Randy what he considers to be a safe number of bidders in each auction. Randy has found that his auctions do better when there are not a lot of bidders. When lots of bidders come, they become more competitive and over price the property. Unfortunately, the high bidder often realizes 3 weeks later that he does not want the property, because he will pay too much. Randy’s typical preference for an auction is 5 to 10 buyers. Having fewer bidders will cause the property to sell closer to market value, and it will more likely be a successful sale. High bids might make clients happy, but if their property does not finish the selling process, then the selling value does not matter.

When Bruce has sold his properties through auction, most of his failures came as a result of defects in the property’s location and condition. Sometimes Bruce’s own selling expectations have brought about his auction failures. Sellers must have reasonable expectations for their selling prices.

There have been occasions when Bruce though his house would sell at a low value, but ended up selling for a much higher value. It is hard to predict what will happen at an auction.

When Bruce tried to hold his own auction, the only house that sold was the one in the worst condition. Two of his houses were priced very highly, and one of his potential buyers could not get financing. Bruce asks Randy if the property’s condition is a major factor in whether or not a house will sell. Randy usually makes minor repairs on his auction properties. He tries to make his properties better than the average REOs in that area. Bruce thinks that is a very smart decision. Bruce made many repairs and upgrades to his properties, but this caused trouble with appraisals, because his homes were in much better condition than the comps in his market.

Randy’s son Mike enjoys working as the president of the California Auction Association. He is still on the board for the CAA. Mike won the bid-calling contest this year for the CAA. He prefers doing charity auctions, because there are a lot of items, and that makes his job more fun.

If you are interested in doing auctions with Randy, his website is www.sellwithauction.com, and his office number is 661-325-6500.

The number for Elite Auction is 661-325-6500, and their website is www.sellwithauction.com

Elite Auctions Randy Grigg (Full Bio)

This week Bruce is joined by Randy Grigg. Randy is the president of Elite Auctions. He spent 30 years as a pest management consultant, and gained a large portfolio of rental properties during that time.

Bruce begins by asking Randy what gave him the idea that real estate was a good investment. Randy read a book by Mark Hearld which persuaded him that he could make big money in real estate. Bruce also owns Mark’s book, and he believes Mark did a good job at marketing it. Randy also received some training from Jack Miller in 1983. He started buying a couple properties in 1976.

Randy had a very slow method for buying real estate. He had a career when he started, and he continued investing as he continued his education. His beginning goal was simply to break even on his net cash flow. He always used the seller to produce the financing, because he did not want to frequently use the bank. That is very different from how Bruce got financing. Bruce thinks that, in the future, sellers will have to be more willing to carry paper for financing.

When he first started, Randy attracted offers through Realtors. Randy would make approximately 20 offers per week. Doing this, he would get one to three properties every year. Later on, he started using ads as his primary source for getting deals. Eventually, he also used letters to neighborhoods he wanted to buy in.

Bruce also used ads for quite some time, and it gave him a great education in dealing with people. He eventually learned what kinds of people were or were not worth his time. He also learned some patience, as he had to sit through 100 calls before he would get the 1 call he wanted. At one time, Bruce would not make deals unless he could personally meet the seller. He only had so much time for doing this, so he became very efficient.

What is interesting about Randy’s and Bruce’s philosophy is that Randy kept his, and Bruce sold his. Bruce believes that Randy’s philosophy for buying worked better. Bruce sold properties for profit, but Randy kept his properties for income. Randy learned this philosophy because the area he invests in (Bakersfield) does not have much price inflation. Mike Cantu has a similar buying philosophy and he is also happy about his outcome. Bruce has learned from Mike and Randy, and now he also keeps properties as rentals. Bruce feels that having rental properties helps his decision making process. People who have cash flow above their expenses do not have to make risky decisions. If you own 15 rental properties, you will be provided with a nice and steady lifestyle.

Randy and Mike started their auction company 8 years ago. It was easy for Randy to buy homes, but he did not like the unpredictable aspect of selling. Randy attended a public auction in his neighborhood, in which he tried to buy a property, but the people attending out bid him. This taught Randy that auctioning was an effective tool for determining a property’s market value, so he decided to sell his homes in auctions. He had a lot of trouble using auctions when he first started. He sometimes lost 20 percent of his equity on a sold property. He slowly learned how to better set up his auctions, and he discovered new ways to attract the buyers he was looking for. In 2004 to 2006, Randy’s typical seller was someone who wanted to capitalize on the appreciation that occurred during that time.

Bruce feels that most people do not think of auctions as a good way to maximize your selling price, but it is. When you sell homes in an auction, you place all of your potential buyers in direct competition with each other.

In 2004 to 2006, Randy’s typical buyer was either a speculator who thought that prices would increase forever, or an owner occupant. At that time, Bruce noticed that people were desperate to buy property. People were not concerned as much with appraisal values.

In 2009, Randy’s selling clients were people who had a better understanding of the cost of selling. During the downturn, some people felt that if they did not sell their home quickly, then they would lose the opportunity to.

Selling a property is not an easy or guaranteed to happen. Being in escrow does not mean that your sale will surely finish. In 2007 to 2008, if you had a 60 day escrow that didn’t finish, then somebody made you lose 5 percent. In 2009, selling was not as problematic, but it was still difficult for people to qualify for a purchase.

When people put money down in an auction, there is a better chance that the sale will close. If buyers cannot finish a sale, then Randy splits that down payment with his selling client.

In 2009, 25 percent of auction buyers paid with cash, and 75 percent paid with conventional loans with large down payments. Randy only had one FHA buyer in 2009. Sixty percent of his buyers are long term investors, and about forty percent are parents who are buying homes for their children or owner occupants. Bruce thinks that is amazing. Randy’s auctions sell for an average of 107 percent of comp value.

In 2010, conventional loan providers may change their policies to match FHA. Wells Fargo changed their seasoning policies, not long ago.

2009 ended much differently than Bruce envisioned, because many rules changed. The HVCC and the 91 day FHA selling rule made it difficult for Bruce to sell. Because of this, his business shifted from FHA inventory to conventional inventory. At the beginning of the year, Bruce was buying properties for 60 grand in the beginning of the year, but after June, he started buying properties for 250 grand, and selling them for 350 grand. Those more expensive properties were much cleaner properties, and they were easier to sell. This change made Bruce feel like he had died and gone to heaven. This experience has taught Bruce to have flexibility. When rule changes force you to change your business plan, there is always another way to make money.

In 2010, Bruce estimates there will be “big dollar” foreclosures. Randy is beginning to see Bruce’s estimation come to life more and more. For example, in Riverside, an 8,000 sq. ft. home, in a nice area, was being sold with $1.7 million worth of financing. The owner lost this property at a trustee sale. The opening bid at the trustee sale was 608 grand but there were no bidders. This property is now listed for 525 grand. It is $1,100,000 less than any other property on that street, and it is not pending. The problem is that people cannot get financing for these homes. This may be the next market for Randy, and he would be happy to deal with these expensive properties, because he earns a lot more per sale with expensive homes. His income has decreased dramatically because home prices have greatly decreased. Realtors have also experienced a great decrease in their income because of these price decreases.

Randy bought properties in 2009. 85 percent of these homes were bought through other auction companies who do not have selling models which maximize sale prices. The rest of them have been bought from private sellers and banks. These low-price auction companies deal with large sums of properties, so they do not spend as much time properly valuing them. Randy’s company sells fewer properties, so he has more time to properly maximize his sale values.

The number for Elite Auction is 661-325-6500, and their website is www.sellwithauction.com