How Is the Bidding Done in a Tax Auction?
Tax auctions are auctions by state and local governments in which tax liens are sold. However, these auctions are not always won by the highest bidder, as tax auction bidding can be conducted in four different ways.
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Identification
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Tax auction bids can go two ways--participants can bid an amount up or they can bid an amount down. Amounts can be anything from a payment for the lien, an interest rate or a percentage of ownership in a property.
Types
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There are four types of tax auctions: highest bidder wins, bidding down the interest, bidder willing to pay the highest premium wins and bidding down a percentage of ownership on the property.
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Considerations
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On tax auctions where an interest rate is bid down, a bidder can risk getting virtually nothing for the lien if they bid it down too low and the lien is paid quickly; however, some states have a minimum interest payment that must be paid on tax liens, which will help guarantee the bidder some profit.
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