I bid on one recently with an opening bid of approx. $190k. The auctioneer did not say anything about it being a low/high situation. After I bid one penny over the opening, there were no other bidders. Then at that time the auctioneer said that she was authorized to bid $240k on behalf of the bank. In reading some other posts relative to this topic, it is indicated that most investors would know what the bank’s number is going to be. My question is how would anyone other than the auctioneer know that it is a low/high situation and that the opening bid is not going to be enough? I don’t see that the price the bank was wiling to bid was posted anywhere. So how would you know?
Robin … the scenario you described is the most common and likely “proper” manner in which low/high bidding is conducted. There is no way of knowing ahead of time that you will be in a low/high scenario … It is true that SOME auctioneers will let everyone (assembled steps buyers) know what the “high bid” will be just before they begin the bidding process. They do this to save everyone time as who wants to stand there bidding the property up in $100 increments when the lender’s “high bid” might be $200K to $500K above the opening bid? I’m fairly sure most lenders would prefer (and may even mandate) that no one knows ahead of time what the high bid will be until that number is hit during actual bidding. This plays into investor psychology … you’ve invested so much time/energy/adrenalin into bidding on this puppy … so you’ll let the emotion of the moment and your competitive drive get the better of you and cause you to bid more than you would ordinarily (getting swept up in the moment is a common mistake for newbie steps investors … arrive at your “maximum allowable offer” ahead of time and stick to it … there will always be another property … let someone else pay too much).
Some lenders make it obvious that it will be a “low/high” by posting an early (i.e. days before or night before) opening bid @ one-hundred ($100) dollars. A $100 opening bid is a pretty good “tell” that it will be a low/high. I participated in one where the lender posted an opening bid @ $41K … Before I drove to the auction, I was SURE it was going to be a low/high scenario … but NO … it turned out that the lender (BoA) simply screwed up on their BPO and totally missed the true value of the property, which was appx $450K. That one got bid up by savvy steps investors and sold to a 3rd @ $295K.
I also saw one scenario where some steps vets got the “word” whispered to them by a friendly auctioneer that it would be a low/high (well before the action started) … this was a distinct advantage to this particular team, as now armed with this info (the specific amount of the high bid that was NOT publicly announced to the group), they promptly left that venue and were off to another steps location where concurrent auctions were happening, leaving the "uninformed" to remain in the vain hope of getting a deal on the low/high bid property. In this case the auctioneer did NOT tell the remaining steps bidders the high bid amount until it was finally reached … after a protracted (time-consuming) bidding process. Yes, I was one of the bidders left with a dumb look on my face ;). Needless to say, I will not let that happen again. If I ever find that pertinent info has been whispered on the side (not shared aloud to everyone), I will put up a major stink with the auctioneer and his/her boss.
I should add that the “merciful lenders” (who want to save everyone time) under a low/high will promptly jump up to their high bid immediately after the opening bid. Other lenders prefer to incrementally “counter bid” any steps investor by a pre-determined amount (continually raise you by $100 or 1,000) until they finally reach their undisclosed "high bid" number. The latter are the more "painful" low/high scenarios as they can waste everyone's time IF the high bid effectively eliminates most/all equity (and it commonly does).
Thank you Danny B. for that very informative response. It was disappointing when the low/high bank bid was announced. It was the only sale of the day where I saw that happen. I appreciate your tip about the potential for a low/high bid when they post an opening bid of $100. I will watch for that in the future. All very interesting. Thank you.
Listen to the terminology. If auctioneer says “SPECIFIED opening bid” that IS the bid. If he/she says “opening bid” or “starting bid” - then, often there is a high bid.
Some few Trustees always have a low/high bid. Professionals know this. To save everyone’s time, some auctioneers will say they have a high bid. There were other discussions as to reasons why this is done. I disagree w. DB - it is not done to encourage bidding because everyone knows if there is a high bid - 99% of the time it is for MUCH more than the value of the property. These “low” bids are normally announced at the last minute. If a lender really wanted to encourage bidding, they would announce the bid in advance.