Bidding Strategies for bidding at a tax lien sale vary widely! What works best for you will depend greatly on your circumstances – how many bidders you are competing against, how sophisticated they are and what their bidding strategies are. The very best advantage you can give yourself is to get to know your specific competition and what parameters they use to bid. I will touch more on this in a moment.
First, realize when you attend the auction that you will see a much larger crowd than is actually bidding. I always recommend that you attend at least one auction BEFORE you are ready to bid, and just observe. Return a different month prepared to participate, but use your first months to take note of who is bidding, on what they are bidding and what their bidding strategies are. In Dallas county, for example, the crowd usually numbers around 50 or 60 people, but of those, only about 15 will bid and of those, only about 6 or 8 are investors planning on bidding on multiple properties. After attending many auctions, I have observed that only one of the consistent investor bidders in Dallas county is bidding on the type and value properties for which I am also pursuing. If other bidders bid on my properties, they typically are homeowners or small investors that bid on one or two properties, and then disappear for an extended period of time, if not forever! Knowing my competition has become a great advantage. My biggest competition uses the “Last In” bidding strategy (explained below) along with a “Bully Strategy” and will typically bid a property up to approximately 30% to 33% of market value.
Last In – This is probably the most common bidding strategy. A bidder lets other participants bid up the property amongst themselves and does not enter the bidding until the last minute when he announces his bid. This can be advantageous, because too many bidders has a tendency to create excitement and drive the bid upward. Limiting the number of bidders in the fray until the last minute limits the excitement and can also minimize the bid.
Another bidding strategy used by my competition is the “Bully Strategy”.
Bully Strategy – When an investor group, or a large individual investor has a “lock” on a certain county (they tend to get all the properties of value in that county consistently), they often use a bully strategy. By “lock”, I mean that over time, individual investors have become discouraged about their prospects of winning property and have stopped attending the auctions. Because the big investors buy multiple properties at every auction, their quantity of purchases will allow them to spend more on one property than they otherwise would in order to discourage a potential investor threat. The average of their properties still allows them to keep a very high margin even if one property does not make as high a profit. This can be a very dangerous strategy as you must have a large quantity or properties to make your overall profitability stay high, and it seems a bit unethical, but it happens all the time. What can you do if you are up against a “Bully”? Well, you can either make your mark by buying a property for higher than you would otherwise spend on the property just to make the point that you will not “go away” or you can be patient and wait. Eventually, the Bully will probably get tired of you driving up the price of his purchases with your bidding against him and will let you win a property in hopes that YOU will go away!
Another strategy that can be very effective involves simple common sense. Every sale process is different, and in some sales, you are given a list of properties at the beginning of the sale that have NOT been pulled, and you are given the order in which they will be sold. In other sales, you have no idea which properties have been pulled or in what order they will be sold. Either way, you can use this information (or lack of information) to bid up as high as you wish the first few properties in hopes that your competition will run out of cash!! I call this the “Cash Strategy”.
Cash Strategy – Bid up properties prior to your first choice in hopes that your competition will run out of cash before the primary property of interest comes up for bid.WARNING: if you decide to use this strategy, make CERTAIN you would be happy with a property that you “accidentally” purchased because your competition stopped bidding sooner than you would expect. This is when it is advantageous to know your competition and what their parameters of bidding are. If you know the property is one that falls into the category of which they bid and no one else is bidding against them when their bid is, for example, 10% of the value, it is PROBABLY safe to bid him up another 10% to 15% which means he will have less cash to spend on the next property. Only, you run the risk of him dumping the property in your lap by stopping his bidding and then it is you that is out of cash – not him!
Last, if you attend an auction in a smaller county, there can be very few bidders. Perhaps the auction only draws a crowd of 10 or 12, and of those, only 2 or 4 will bid. Many bidders opt to use a bidding strategy that I call “Intimidation”
Intimidation Strategy – Frequently, bidders, especially in smaller auctions, choose to be very “standoffish” refusing to talk to anyone before the auction or to be friendly in any way. Often, they dress nicer than those attending and look very official. These bidders believe that by not taking part in the discussions prior to an auction and by looking markedly different than the other bidders, they are given an intimidation factor. They typically employ the “Last In” bid strategy and come in with a forceful voice. It is true that this gives the appearance of knowledge and there are those that will stop bidding because they believe this bidder “must know something” that they don’t and they don’t want to get caught with the last bid against this bidder, because it would imply that they paid too much. I am not a fan of this method, but everyone must choose what works best for them!
Regardless of which bidding strategy you choose to employ, ALWAYS go into the auction with your research complete and know your competition. Knowledge is the key to making smart decisions!