15 Jan How Competing investors affect prices at County Tax Deed auctions
Like in any market, excessive competition at Tax Deed auctions will affect the prices drive them up closer to the true market value. However in the Tax Deed arena has some characteristics, which prevent this from happen.
Characteristic #1: Cash requirements.
Tax Deed Sales are usually a Cash affair. That means you can’t come to an auction with $500.00 in your pocket expecting to be able to buy a $100,000 property and then spend the next few weeks qualifying for financing, like it happens in the regular market for residential homes. Instead most counties have regulations expecting any winning bidder to come up with the full cash within somewhere between 24 and 48 hours from the sale.
As a result, because most of the population does not have $100,000 or even $10,000 sitting in their bank accounts unused, the vast majority of the population will and cannot attend the auctions to buy a property.
Characteristic #2: Insurability of title
Most people and even banks think that the title of a property purchased at Tax Deed sale is not insurable and first must pass through a Quiet Title Suit. While this is not exactly true (there are ways to insure these properties) banks in particular are very conservative institutions, and they usually (mostly) do not finance properties purchases from Tax Deed Sales. So even if an investor does his due diligence in advance, finds an awesome property with a high value and a very low starting bid, it will be almost impossible to get a regular bank to commit to financing this deal.
As a result not only does the county require cash but it is almost impossible to get that cash from any conventional financing institution.
So short of obtaining a private money loan (bye the way a very feasible option), the only way to get a property is to have the cash at hand, something only a small fraction of the general population has access to at any given time.
Characteristic #2: Image
Even for properties where bidding start at the lower end of the spectrum, most people shy away from these auctions because they can just not imagine that a property which has an opening bid of $300.00 is any good. These properties are admittedly not in downtown of a larger city, but rather in the outskirts or in more rural areas, but in the majority they are pretty nice properties, worth perhaps $5,000 to $10,000 and usually vacant or raw land, but that also means that competition on these is usually quite low and you can get some awesome deals here.
And many investors skip these properties in favor of more valuable pieces of land.
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