How to Determine Your TOP Foreclosure Bid

At this month’s foreclosure auction, Kim and I were prepared to bid on four properties.  After losing the bid on the Peppermill Drive property to another investor, a new investor asked how we determined our T.O.P. (Top Offer Price) bid.  It was a very good question – one that we’re asked regularly.

Before we bid on a property, I’m adamant that we first do the following:

1) We see the house – both inside and out.  Our goal is to do a thorough inspection of the property to determine an accurate rehab cost.

Can’t begin to tell you the number of times we’ve been to a house that looks great on the outside, but when we go in, it’s disaster city!  The appliances, fixtures, toilets and cabinets are G-O-N-E, and the house is a total wreck.

How hard do we stick to this rule?  At this month’s auction, a property on Camden Woods Drive, that has an after-repaired value of around $85,000, had an opening bid of $22,709.  Kim begged me to bid on the property, even though we hadn’t seen inside.  After all, how can we go wrong buying an $85,000 property for $23,000? Oh, let me count the ways!  Needless to say, we didn’t bid on the property and another investor picked up a – likely – great deal.

2) If we identify a property as a target property, we determine what the property would quickly sell for after it has been rehabbed.

3) We then go to the County’s Deeds Records Room and do a title search, lien index search and look at the property’s plat.  This allows us to know which mortgage is foreclosing – the first, second, etc.; whether the property has clear title; what liens are on the property; and any easements that come with the property.

4) We visit the Tax Commissioner’s office, where we find out the yearly property tax bill and whether the taxes are current.  It’s important to remember that while junior mortgages and junior liens are wiped away at the auction, delinquent property taxes are not!

5) We calculate our TOP bid.  Here’s the mathematical formula we use: The Property’s Conservative After Repaired Value – Our Minimum Acceptable Profit – Purchase Costs – Rehab Costs – Holding Costs – Realtor Commissions – Closing Costs – Miscellaneous Expenses = Top Offer Price.  (If you email me, I’ll gladly send you my TOP form.)

At this month’s auction, the property on Peppermill Drive had an opening bid of $50,958.  We estimated the after-repaired value to be $125,000.  Using our formula, our TOP bid was $78,001.  Another investor outbid us. 

Another of our target properties was on Waters Edge in Acworth.  Its opening bid was $70,400.  Our estimated after-repaired value was $110,000.  Our TOP bid was $79,001.  Again, we were outbid.

It may seem that we got our noses bloodied at the auction, but remember: Some of the most profitable deals you will ever do are the deals you never do!  With foreclosures, determine your Top Offer Price bid and stick to that number.  Remember, bidding isn’t personal; it’s just business!

Bill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.