How to Calculate Bid Price

You should calculate your highest bid price before you attend an auction.
You should calculate your highest bid price before you attend an auction. (Image: Photodisc/Photodisc/Getty Images)

When services or goods are placed on auction there is often the opportunity of getting a bargain. Whether you plan to place a bid on eBay, the stock market or at a foreclosure auction, you need to calculate you bid price before you can start doing business. The methods used to calculate a bid price vary depending on the nature of the auction and the services or goods sold. For instance, an art collector uses different principles and mechanisms to calculate the cost of a Van Gogh painting than a real estate tycoon pricing a mansion sold at a foreclosure auction.

Calculate the current market value of the item you plant to bid on. How you do this will depend on what you are bidding for. For instance, if you plan to bid on a foreclosed property, visit the property with a trained appraiser or valuer and ask for a professional opinion. The appraiser will probably assess the selling price of similar properties in the same area and estimate the replacement cost of the building and fixtures included in the sale.

Assess your own financial situation. Consider how much you can afford to invest. For instance, investing in a new car, regardless of what a great deal it is, may not be the best decision if you are heavily in debt and struggling to pay your current financial commitments. This is especially important in states where bidders are required to bring the full, or in some cases a set portion, of the selling price.

Deduct from the current market value the costs you would incur in to buy and, if required, repair or remodel the asset. Apply a deduction based on the profit margin you need to make the purchase a good deal for you. For instance, when bidding for a foreclosure home it is reasonable to discount 20 percent, sometimes even more, from the current market value of a property. To illustrate, if a foreclosure home has a market value of $100,000, offer no more than $80,000.

Set a maximum ceiling you never exceed. This will protect you from the heady atmosphere that often is created in an auction room and causes many to bid more than on an asset that it really is worth.

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