Sitka, AK · Member since 2012 · 14 posts · 6 votes
I'm preparing for my first Local tax deed auction. I come from a scientific/research oriented background(though not my occupation now) and so this study confirmed a lot of my preparation research. Bottom line: Choose a target (% or $) and stick to it.
While I didn't read the entire article, I imagine that whatever was ultimately proposed as an optimal bidding strategy was the same as following Nash equilibrium, another concept you might want to familiarize yourself with from game theory.
Now, the problem with using Nash equilibrium -- or any other optimal bidding strategy -- in a real estate auction is that the item being purchased doesn't necessary have a commonly agreed discreet value (what the article calls a "common value model").
Instead, the participants in a real estate auction may have very different perceived values of the properties up for sale, depending on what their exit strategy for the property is. Are they planning to live in it? Wholesale it? Flip it? Rent it? Etc?
If all bidders don't assign a common value to the property, it's impossible for a single bidder to determine an optimal bid.
It is, of course, based on Nash's equilibrium. Another gaping hole is the assumption that all bidders/bidding will be done by rational individuals. LOL
My strategy is much more simple. Analyze past auction property assessment vs actual sale amount(on resale-able and/or rental prospects), then apply to this years candidates. Just hoping for a quick ball park #. don't have much cash on hand, but I am hoping to pick up a few smaller pieces and one severe rehab, or one larger chunk of land.
numbers are looking good, especially since this is a smaller population area, and there are no online bidders.
"Analytical results for very simple auction models suggest that rational bidders in common value sealed bid auctions can generally avoid the winner’s curse if they presume that their estimate of an item’s value is the highest amongst all competitors and then bid some fraction of their original estimate."
I am closing next week on a house that the "winner" backed out of and it was listed BOM on the MLS. I submitted a bid for 2k lower than my original losing bid and got the property--offer accepted same day. Cash, no inspection. VA/Wells Fargo/some asset mgmt firm. 6% over list. Realtor said there were over 15 bids first time around. 2 submitted the day it went BOM. (Second house purchased no inspection.)
My mom went to an auction at the closing of a high-end nursery/gift shop and her friend bought something for higher than the original retail price sticker on the bottom of the item (discovered in the car on the way home).