How to Bid on an Auction
Tax liens or deeds can be purchased using one of the following methods:
1) Live, On-site Auctions
This is the oldest and most common method to sell tax liens and deeds. County officials schedule the auctions, unless the state stipulates otherwise. When we invest at live, on-site auctions, we actually go to the county courthouse and bid on properties alongside other investors. Before attending the auction, you would register for it, and then you would be assigned a bidder identification number. Make sure to check with the county about any registration deadlines long before the auction.
When you attend the auction you sit down in the designated room and wait for the auction to start. An auctioneer stands at the front of the room and reads off an identification number for a property, one at a time, which is usually the parcel number for the property, and then the bidding begins on that property. The auctions are public so there may be quite a few people there. The level of competition at the auction largely determines your success.
2) Live, Online Auctions
Online auctions proceed like a live, on-site auction, except it all happens on your computer. Before the auction starts, you should go to the website, register for the event, and download the updated list from the site. When the auction begins you simply bid by clicking your mouse button rather than raising your hand like at an on-site auction.
The advantage of an online auction is that you can participate from the comfort of your home. You can do most of the research from the comfort of your home and also many of the online auctions will have the property information easily accessible. Usually just by clicking on the tax lien or deed that's being offered at the online auction, you can pull up much of the crucial information that we are interested in.
Buying over-the-counter tax liens and tax deeds means buying the investments that were not made at the auction. They are the leftovers from the auction. It is possible to buy over-the-counter tax liens, deeds, or redemption deeds. However, it is most commonly done with tax lien certificates.
Over the counter investing is good because you are not dealing with live competition like investors do at the auction.
Different Bidding MethodsMethods Counties typically use one of three bidding methods at their auctions; premium bidding, bidding down the interest rate, bidding down the percentage of ownership, rotational bidding, and random selection.
This method is the most commonly used method by tax deed states. There are a couple of tax lien states that use premium bidding but very few.
The premium bid method is similar to what you would expect at a typical auction. The price starts at the delinquent tax amount plus fees then goes up according to the bidders. Depending on the competition at the auction, the price could remain very low or it could be bid up fairly high.
The amount that the property is bid above the base amount is known as the surplus. If the opening bid starts at ten thousand dollars and you ended up paying fifteen thousand dollars for it, then that additional five thousand dollars is called the surplus. And usually that will be given back to the property owner after the debts are paid.
If investing at an auction using this method, make sure to set a maximum price you’re willing to pay and don’t exceed it.
Bidding Down the Interest Rate
This system uses the interest rate that the investor earns as the bidding medium. The bidding starts at the maximum rate of return that the state offers and then that rate is bid down incrementally by interested investors. Florida, Arizona, and other large tax lien states use this method. In Florida the bidding starts at 18% and then goes to 17.75%, 17.5%, and so on until no one is willing to take any lower. If attending an auction that uses this method, make sure to set your baseline interest rate and don’t bid below it.
Bidding Down the Ownership
This is the least common bidding method, and for good reason. This method uses the ownership of the property as the bidding medium. The bidding begins at 100% property ownership and then works down 1% at a time until the bidding stops. After the sale, the investor would own whatever percentage he or she bid to, and the previous property owner would retain the remaining percentage.
If used in a tax lien state, the ownership would only apply after the redemption period ends and the investor attempts to take ownership of the property. In order to settle the difference, the investor would have to settle with the previous property owner. This bidding method is very rare and a little bizarre.
Forms of Payment
Most counties will require payment for any tax liens or deeds within twenty-four hours. The counties will require certified funds, bank checks, or cash. Online auctions have payment systems in place that allow you to pay with a credit card or ACH withdrawal.