So—how exactly do we bid in a tax deed auction?
In the previous blog post, I introduced you to what a tax deed auction is, how it works, and how you can make the most of it. But how does the bidding process work? How complicated is it? And what’s the timeline for each stage of the process?
When the Auction Begins
When you bid on a property before the auction starts (see part 1 on how to do this), there will generally be a page on the website where your active bids are ongoing, the status of your bid (whether anyone else has outbid you), along with details about the property itself.
If you’re at all familiar with how auctions work on eBay, the bidding and live auction processes at a tax deed auction are relatively similar.
The way it works is that the “current high bid” is always an increment (in this case, a hundred dollars) more than the previous bidder. For example, if the current high bid is at $7,000 and I bid $10,000, it doesn’t mean that the new high bid is $10,000—it will be $7,100.
In Michigan, you’re allowed to bid up to 30 days before the date of the auction, and your bid won’t get locked in until the action starts (so if you want to back out, you have that option).
On tax-sale.info, which handles most of the county auctions throughout the state of Michigan, each individual county (or sometimes, groups of counties) will hold their auctions on different days throughout late-September and early-October, so even if you win nothing in one particular auction, you’ll still have a chance to bid at the other auctions happening later in the month.
Responding to Competing Bids (or Not)
When you’re focusing on only the best properties at a tax deed auction, there’s going to be A LOT of competition. If you’re only planning to make the minimum bid amount, don’t expect to walk away with any tax deed when the auction is over, because you will be outbid almost every time.
Depending on the website, the live bids may be refreshed in real-time, or you might need to manually refresh the page to see what the current high bid is. In any case, bidding at these auctions also means recognizing which properties are worth adjusting your bids for. Some properties are worth fighting for, but many are not.
One strategy is to look at the assessed value of the property, which is usually a percentage of the property’s estimated market value (according to the county assessor, anyway).
In Michigan, the assessed is 50% of the total market value, so if the competing bids are getting close to (or exceeding) the total market value, most investors will abandon their bidding because there simply isn’t enough value in the deal to justify their investment.
The goal is to be the winning bidder on a property that is deeply discounted, and worth far more than the winning bid amount. This kind of excessive value is what every tax deed investor is looking for.
In my case, when I’m looking specifically for vacant land properties, I usually peg the maximum bid price at 30% of the total market value, which is obviously far below the assessed value.
Again, if you’re going to participate in a tax deed auction, it’s a good idea to go into it with a maximum amount in mind… a ceiling number that you absolutely will not exceed under any circumstances.
If your maximum value has been outbid by a competitor (which happens almost all the time, mind you), it’s important to NOT get carried away in the emotion that auctions are famous for. This is how people start making dumb financial decisions that come back to haunt them… and it’s much easier to avoid these when you have a pre-defined maximum bid amount in mind for each property.
Assessing the Accuracy of the Total Market Value
On Michigan’s tax deed auction website, the information for the property includes the assessed value, and the total market value of the property.
You don’t need to take this as gospel truth, however. You can cross-reference it with other tools, like Zillow, and run comps on similar properties in the area. You will most likely find that the total market value of the property is different (usually less) than the one you see on Zillow, so you can use this information whether to increase your bid or let it go.
After the Auction
When the auction is finished (they typically begin at 10:00 am and finish at 7:00 pm the same day), all bids are locked and closed, and you will no longer be able to modify your bids. If you lost a bid on a property, you will see how much it has sold for, including how many people viewed it (note that the number of views doesn’t mean unique views or how many have bid on it—it’s just how many times that property was loaded into a browser). If you are the winning bidder, you’ll be expected to fork over the money immediately in exchange for a tax deed from the county.
Stick around for the next part in this series, where I’ll show you how to take the county’s raw data and decide which properties to bid on. I’ll also show you how I spot properties with a great profit margin and attributes that make the most sense to me. These little tricks can be a huge time-saver and they’ve helped me find order in the chaos of the county’s property data.