Just another $500 you say to yourself as your eyes are glued to the monitor that shows you have just been usurped as the leading bidder with five minutes to go.
Ten minutes later you are once again the glorious lead bidder on that two thousand, two hundred square feet, two bed, two and a half bath single family dwelling in Brickle, Miami-Dade.
Here is the problem, hours of research, hour round trip to drive-by the property, two real estate agents and your own comps told you that the property in foreclosure was worth bidding at $198,000 tops, and here you are at $203,100 with the re-set 30 second auction clock counting down to the fact you just overpaid by $5,000 for this not-so-great property that one day ago you cared less whether you won or not.
In that 30 seconds you sub consciously prayed that your arch nemesis or there may have been more than one had come in and take you out of the zone you swore blind that you would never enter, the Kamikaze Bidding zone.
The winning bidder statement on the screen next to the property case number now means very little as you realize that you are going to have to work hard to off-load this property as the margin has become incredibly slim with not much wriggle room.
How did this happen, quite literally you lost discipline?
We have all been in the situation where you have lined up half a dozen properties to bid on and one by one they have fallen by the wayside either to outbidding or cancelations and this Brickle property was your last horse running and you were in touching distance.
It’s then much like anybody with an addiction albeit this one temporary that you have to think about consequences. The time to second guess yourself as to values is the day before the auction not while taking part in it.
The likelihood is that your research is spot on and that your adversaries are not. It also maybe the case that they, the opposition may have a different agenda to you. I have been up against hedge funds where the bidder does not care whether the property works or not, as long as they are in the ‘ballpark’ (as the value will appreciate overtime) they will bid because they are getting a buyers commission come what may, and if they really screw up they will dump their deposit and walk away and make it up on the next one. I have bid against money launderers and so that’s a no win for sure, newbies and the worst of all, stupid clueless idiots that thought the IRS tax lien was just a suggestion.
It is far better to get outbid and back research the deal and sometimes the winning bidder than to work out how you are now going to make the deal work.
I have met and talked over my time in this business to several people that have bought a property at the foreclosure auction that they knew nothing about prior to the auction. Buying a property without research is not an uncommon story. Paraphrasing, the investor spends several days researching properties that are coming to auction at various times over a four-day period. Come Friday, they are outbid on the last property of the week. They see a property located in an area they know, where so far, the bidding has been very lite. Before they know it with super-fast, nonsensical research they are bidding really low on a property that they have very little info on except for a sketchy sales value, the plaintiffs name, and a quick glance at the defendants recorded documents in the county records.
The kamikaze bidder thinks that if they buy it cheap enough they could always maneuver around any problems. There were a few positive outcomes, but most dumped their deposit and walked away. Most were completely unworkable deals and the 5% deposit gone in the wind.
The gambit of emotions these people usually feel cycles through Exasperation & Frustration when they were outbid on their last property to Expectation – Exuberation – Elation to eventual Deflation when they played Kamikaze Bidding. Same feelings a person would experience gambling at a high stakes black jack or roulette table.
There are lots of investors that wing it, usually the one’s with a lot of money that play the numbers game, win it at auction without too much research, good, keep it, bad, lose the deposit and on to the next one. Now if you can afford that strategy of winning more than you lose then ‘all power’ to you but if you are like the rest of us, this will kill you. The old adage rings true “there are brave pilots, there are old pilots, but there are no old brave pilots”.
The absolute rule is walk away when the carefully calculated predefined maximum bid amount is eclipsed. The thought in your mind has to be there are auctions most days of the year, you win some, you lose some but you live to bid another day. Whenever I had a bad day at the auction and by that I mean not win anything, I always said to myself some of the best deals I’ve ever done are the ones that I didn’t do.
Patience, patience, patience is a key element in fighting off Kamikaze Bidding if you lose that, you will lose money.
The temptation is always there, DON’T SUCUMB my fellow bidder!