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John Souerbry's Blog

By John Souerbry | Broker in Palo Alto, CA

Tips For Conducting Residential Rental Auctions

residential rental auctionsMany different methods can be used to establish the lease rate for a residential rental.  Owners often set the rate to be competitive with other rentals in the market or to provide a minimum return on their investment.  If demand for the rental is weak, they may have to make improvements or take a less than profitable lease rate just to keep the property occupied.  But what options do we have when the opposite is true – when demand for our property is strong and we’re not sure if our rent rate is as high as it could be?

An effective method of using market forces to our advantage is a rental auction.  When we have a rental property that is in high demand, the auction process can help us identify qualified applicants who have the means to pay the maximum rent – perhaps more than our market rent analysis might support.  Here is a simple process for conducting a residential rental auction.

· We’ll start with a review of local, state and federal landlord laws and regulations to make sure we conduct our auction and leasing activities in full compliance.

· Next we’ll conduct a market rent analysis to determine a minimum rent amount and to identify the property’s competitive advantages.  Those advantages will be highlighted in our advertising to promote the premium value of the property.

· If the property doesn’t have all the “bells and whistles,” we’ll make upgrades until it has everything a high-end tenant would expect (and be willing to pay for).

· We’ll advertise and conduct an open house and not take bids except at the open house.

· The auction will be conducted using a sealed bid approach.  We’ll include a bid sheet with the lease application and ask applicants to simply fill in the blank with the rental rate they are willing to pay (must be at or above the minimum).  Bids and applications will be date/time stamped and placed in a locked container during the open house.  Tip:  Have at least two people working the open house, one to show the property and one to collect applications and answer questions regarding the auction process.  Tip:  If you are expecting good results from your auction, consider carefully if you want to ask for an application fee.  If you have a huge turn-out and process just one or two applications (credit, background, etc.), you’ll need to return all the unused fees to the applicants.  Sometimes it’s better to waive the application fee.  Tip:  Don’t let applicants bid on security deposit amount; those are often restricted by state and local landlord law.  Tip:  DO let the applicants bid on the length of the lease – especially if you like their bid amount and want to lock it in for perhaps two years instead of one.

· Immediately after the open house, we’ll sort the applications in order of 1) highest amount bid and 2) date/time submitted.  We’ll start at the top and run our normal applicant qualification process.  Tip:  People who bid at rental auctions typically want a fast answer on whether or not they got the rental, so we do the qualifying immediately following the open house and try to contact them and get a signed lease and deposit that same day.  If they can’t make a decision within a couple hours, we move on to the next qualified applicant.

Some potential renters will be turned off by the auction process and may not participate if they think their bid won’t be competitive.  As long as demand is truly high, this should not affect the outcome of the auction.  But we can reduce the number of no-shows by focusing our advertising on the features of the property and not putting a spotlight on the fact that we’re conducting an auction, though it should be disclosed that an auction will take place.

I hope you found this information useful and will contact me if you have any questions, need help, or want to share the results of your rental auction.


John A. Souerbry & Associates (DRE 01370983) john@jsrealproperty.com

Tags: northern California property management, Bay Area property management, Silicon Valley property management, Napa Valley property management, Wine Country property management, Fairfield CA property management, northern California real estate

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