#153 3 Auction Cheat Codes

Grant Wiese
11 minutes ago
4 min read

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3 Auction Cheat Codes

We had a great first call for the Land Buying Cohort, covering the listing and learning about the property you are considering. Here are the top 3 items covered:

1) Use plat maps to find partners, not competition.

We all do it. There is a listing or upcoming auction, and you open the attached plat map to determine who is going to buy the ground. There is always someone in a 5 mile radius that is big, is bringing back the next generation, and buys everything that comes up.

This is the wrong approach.

I know from my years of financing land purchases, that rarely is the final sale price all that it appears. As land values rise, a $2M purchase might not be the full story. You walk out of the auction wondering how in the world they can pay $1,000/a higher than any land ever sold in the county. I walk out knowing about the handshake agreement that is going to get me two new real estate loans to finance.

The buyer at the auction wanted the clean, 160a quarter close to home and is willing to consolidate properties to get it. They have agreed to sell (to someone else on the plat map) 80a a few miles away. Those 80a could be owned with siblings, or just be one of their lowest performing properties, it doesn't matter. They are getting $900,000 from the 80a land sale, will put $300,000 cash towards the new purchase, and can cash flow the $800,000 loan on the new property just fine.

I pull out the plat map before the auction to try to construct these types of deals. Either I am selling my least desirable property, or I am seeing if the biggest land owner in the county will sell a smaller piece to me.

Sometimes the best purchase of the day isn't the one that was publicly listed for sale.

2) Don't lose a deal over $20,000.

Do me a favor. Run an amortization schedule for a loan of $500,000 paid back over 30 years. Now run do the same thing for $520,000.

You didn't do it...

That's okay, your busy and not in front of your amortization schedule calculator. Luckily, I have mine. Here's the math:

I fully believe you need to have a max bid. I do not believe your max bid should be a major number (i.e. $10,000/a, $1,000,000, you get the idea). Raise that max bid by $17,833. I don't think the extra $1,628/year in payments is what is going to make or break you, but it might be the thing that makes your competition go home empty handed.

3) Why would someone list ground vs. sealed bid vs. online only?

I really enjoyed this part of the conversation. Why would a seller choose each of the different ways to sell ground? And what are the advantages/disadvantages to you, the buyer:

Listing: I tend to see this most when a seller is testing the market to see if they can get the price they want. This puts the seller in the weakest position, but there is no commitment from them to accept a price they don't like. Buyers should try a variety of officers to see if they can complete the purchase with terms that are win-win.
Sealed private bid: The seller wants more control over the situation. They aren't cornering themselves into selling at a flukey low price of an poor absolute auction. I have bought through a sealed private bid, and I ended up offering my max without a clue what the other bids were.
Public auction: These can be a great way to buy, but also can command a premium. A well run, local realtor can often get top price. Occasionally, out of area properties or sub-par realtors can result in a steal for the buyer, which exactly how my first purchase played out in 2021.
Online auction: If you want top dollar in the sale, I think this is the best chance you have to do it. For public only auctions, there are personal connections that prevent bidding. Neighbors won't bid against each other. A bidding tenant could keep people on their hands. Cousins have enough respect to stay away. By adding the online dynamic, you don't know who is on the other end. Those personal connections go out the window and the highest bid, regardless of any other connections, wins.

We covered A LOT more auction cheat codes, and there are still 3 more sessions to come. I can't wait for next Monday's session when we discover our max bids.