I still remember my first foreclosure auction. My partner and I arrived with our combined savings in a series of cashier’s checks neatly packed in an envelope. There were dozens of other people around us, all from different walks of life. But like us, they all had the same goal: to buy property at a discount.
were literally in their joint pocket millions of dollars, As the bidding began for the property we had planned to buy, a wave of panic ran over me. To my surprise, the feeling was Very Similar to what I get when high-staking at the poker table.
Looking back, it is easy to understand why this is so. As with any big bet, bidding on foreclosures is risky. You stand to win (or lose) a significant amount of money.
And it’s not just that, buying foreclosures at auction Is competitive. If you’ve done your due diligence and selected an asset with great profit potential, there’s a good chance that other attendees will bid against you. It’s a tricky combination, one that often causes people to behave in ways they don’t expect.
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Stress and competition have a way of hijacking your rational brain and allowing emotions to take control. In poker this is called the tilt.
don’t bow to the auction
When you’re sitting at home analyzing properties and planning your purchase, it’s easy to think you’ll be calm and collected when it comes time to bid. But the atmosphere of the auction is not as calm and comfortable as the atmosphere of your home. The competition, the stakes, the excitement – they combine in ways that can compel you to do things you’d never do otherwise.
When poker players lean out, emotions take control and have a negative effect on their play. This is exactly what can happen to you at auction. For example, you may start bidding higher than your bid despite the fact that numbers no longer matter. I’ve seen people get so caught up in the spirit of the auction that they stop bidding more than double They thought the money was safe.
Therefore, in auctions, the goal is to avoid haggling at all costs. In my opinion, there are really only two ways to do this.
The first is to attend lots of auctions and buy your fair share of foreclosures. Eventually, experience will help you keep your head in the heat of the moment.
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However, if you’re just starting out, this isn’t helpful. That’s why I recommend new bidders take the second approach: Employ a series of simple rules and strategies to stay calm and in control once the bidding begins.
Here are nine that have helped me avoid getting scammed in my time as a professional foreclosure flipper.
1. Have the right goals
Bidding in real time against someone else is exciting, but it should not be your objective to beat other bidders. Your goal is to buy a house, not beat a person. There’s nothing wrong with a little friendly competition; It can also be a fun part of camaraderie.
However, it is not helpful when it changes your target.
Memorization: Your goal is to buy property at the best price, not win at all costs.
2. Know your foreclosure bids in advance
Before the auction, you should prepare a bid sheet with notes and information on the property that fits your plans and budget. For each property, you must have a maximum bid.
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never Cross off that bid, especially if you’re new to auctions.
know you will Absolutely be tempted to It’s almost impossible not to get excited about certain properties, and that’s totally okay. But you can’t let that excitement entice you to bid higher; This is a surefire way to lose money.
Memorization: Prepare your maximum bids in advance and do not exceed them.
3. Arrive Early and Prepared
I’ve learned through painful experience that showing up to an auction unprepared leads to bad decisions.
That’s why I recommend that you do the last bit of work on your bid sheet a day before the auction recently, Also, pick up your checks a day in advance so you can get to the auction early. These early preparation efforts will help you stay calm when it comes time to bid.
The more things you can control, the better chance you’ll have of reining in the things you can’t.
Memorization: By preparing and arriving early, you’ll have a better chance of staying calm.
4. Listen carefully
Auctions can be chaotic, noisy, and full of distractions. When you are at the auction, it is important that you pay attention and listen carefully to the trustee so that you can clearly hear the loan and property details.
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If not, you may be making a costly mistake.
For example, there are a lot of blacksmiths in the world, and two of them could easily be facing foreclosure at the same time. If you’re not paying attention, you could be bidding on the wrong property. I have seen it happen.
Memorization: Focus and listen carefully. Simple mistakes can be costly!
5. Do not bid on unknown or abandoned foreclosures
It always surprises me when an asset I haven’t analyzed or that I’ve already ruled out suddenly seems like a great buy in the heat of the moment. Yet, regardless of how tempted I may be to bid, I don’t.
Unless the properties declared in the auction are in your inventory with a bid price you have already set, they are not for you.
Memorization: Stick to the properties listed on your bid sheet.
6. Bring the Voice of Reason
Many bidders bring other people with them to the auction. This is usually due to the fact that it is easy to miss a bid in a busy auction in which many trustees are calling on properties.
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However, when you’re new, there’s an even better reason to bring someone with you: to have them act as your second brain. Give them your properties and your bids. Arrange in advance for them to tell you if they are starting to lean.
Memorization: Bring a friend or partner to the auction. It’s more fun and can help prevent fidgeting.
7. Accept going home empty-handed
Recently, we bought a house at auction for thousands of dollars over the maximum bid set the day before. the reason? Our bidders didn’t want to go home empty-handed.
This is an easy mistake. Auction day takes a lot of preparation, and it’s painful to think that you might go home with nothing.
But trust me, it is better to go home empty handed than to go home with an expensive asset. You cannot make money by losing money. Even if you don’t buy anything, you’ll be going home with valuable experience that will help you at the next auction.
Memorization: Better to go home empty-handed than make a bad purchase.
8. Trust yourself and the process
There have been times when I got carried away with bidding because I thought the other bidders knew more than I did. When you learn the ropes, it’s easy to fall into it.
No.
In the heat of the moment, trust the work. If you have followed the procedure mentioned in bid to buy, then you’re done. When in doubt, refer to your bid sheet and follow your instructions. Think of the bid sheet as a message sent through time to assist you now as you stand anxiously on the steps of the courthouse.
What other bidders do is irrelevant. Trust yourself and the process.
Memorization: Ignore your feelings about the other bidders. Trust yourself and the process.
9. Don’t worry about bidding style
There’s a lot more to poker than just squabbling at auctions.
Buyers are often strategic with their bidding style. Some will bid large sums of money to intimidate the competition. Others bid small amounts for the sake of appearing disinterested.
In fact, the bidding style doesn’t tell you much. They are tactics designed to play on your emotions. You can’t tell whether every bidder is desperate, bluffing, or is new to auctions. Likewise, you can’t tell whether the low bidder is reluctant, broke, or playing a specific strategy.
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Your best course of action as a new bidder is to focus on the numbers and stick to your bid sheet. All that matters is whether the current bid is higher or lower than your maximum bid.
As you gain experience, you will become familiar with some of the other players and their bidding styles. You can later experiment with your own speaking style or follow the style of others. However, for now, just play the numbers. Keep an eye on your wallet without worrying about anyone else.
Memorization: Ignore the gestures of other bidders and focus on the numbers.
Final thoughts for first-time auction buyers
Believe me, I know how strange it feels to stand in a crowd knowing that millions of dollars are about to change hands. Most people never see this, and it can be overwhelming for first-timers.
But that is part of the excitement of the auction. It is truly an experience like no other.
Taking that excitement and actually enjoying the experience will help you keep your cool. The alternative—getting nervous—isn’t going to do you any good.
As a new bidder, do your best to stay calm and have some fun. If you ever feel like you’re in danger of tipping over, do nothing but watch. There will always be other auctions and other opportunities to buy foreclosures.
Be sure to check out the new Foreword book I co-authored with David Osborne, bid to buy, It is available now at BiggerPockets Bookstore.
Have questions about buying foreclosures at auction?
Post them in the comments section below.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
