How to Buy a House at Auction: Your Max Bid Formula
I'm a loan officer, but I'm also an investor. I'm using real estate to grow my portfolio and, one day, retire. And auction properties are something I really want to dig into.
If you're new to investing and thinking about buying your first house at auction, this Newbie Tip is for you. It could save you from the most expensive mistake new auction buyers make.
Don't be fooled by the list price
When you browse auction listings, you'll see some prices that look unbelievably low.
Here's the catch. That number is usually the minimum bid. It's where the bidding starts, not what you'll actually pay.
If you go in thinking you'll get the house at that price, you're setting yourself up to overpay once the bidding heats up.
What you need instead is a walkaway number. The highest price you'll pay, no matter what.
Step 1: Use the 70% rule
The 70% rule is a quick way new investors can estimate the most they should pay for a fix and flip.
Start with the ARV, or after repair value. That's what the house should be worth once the work is done. Multiply it by 70%. Then subtract your rehab budget.
Let's say the ARV is $200,000 and you expect $30,000 in rehab.
$200,000 x 70% = $140,000
$140,000 minus $30,000 = $110,000
That $110,000 is the most you want to spend in total.
Step 2: Account for the buyer's premium
This is the part a lot of first-time investors miss.
Many auctions charge a buyer's premium. It's a fee added on top of your winning bid. In this example, let's say the premium is 5%.
If you bid the full $110,000, you'd actually pay $115,500. That's $5,500 more than your deal can handle.
To fix that, divide your total limit by 1 plus the premium:
$110,000 / 1.05 = about $104,760
That's your real max bid.
Step | Amount |
|---|---|
After repair value (ARV) | $200,000 |
ARV x 70% | $140,000 |
Minus rehab | $110,000 total limit |
Divided by 1.05 for the premium | about $104,760 max bid |
Plus 5% premium | about $5,240 |
What you pay in total | $110,000 |
Premiums vary by auction, so always read the terms before you bid.
Watch the Newbie Tip
Want to see me walk through it? Hit play. It's a quick one, and you'll have the formula down in a couple of minutes.
Now, let's talk about the part that's harder than the math.
Step 3: Write it down and don't let emotions win
I'll be honest. I'm a competitor at my core. If someone tries to outbid me, my first instinct is to keep going.
That's exactly what auctions count on. The pace is fast, the bids keep climbing, and it's easy to get caught up in the moment.
So write your max bid down before the auction starts. Keep it in front of you. When the bidding passes it, walk away.
Winning the auction and winning the deal are not the same thing. You never want to overpay just to beat someone else.
Step 4: Call your lender before you bid
If you're planning to buy with a hard money loan, call your lender before the auction. Ask two questions:
Can you fund an auction purchase?
Can you close on the auction's deadline?
Many auctions give buyers about 30 days to close, and some give less. Not every lender can move that fast. You want to know before you win, not after.
Your quick auction checklist
Treat the list price as a starting bid, not the final price
Estimate your ARV and rehab budget
Use the 70% rule to find your total limit
Adjust for the buyer's premium to get your max bid
Read the auction terms
Write your number down and stick to it
Confirm your lender can fund an auction purchase and close on time
Frequently asked questions
How much should I bid on a house at auction?
Start with your max bid, not the list price. A simple way is ARV times 70%, minus rehab, then adjusted for any buyer's premium.
What is the 70% rule in real estate?
It's a rule of thumb for flips. You take 70% of the after repair value and subtract your rehab costs to estimate the most you should pay. It's a starting point, not a guarantee.
What is a buyer's premium at an auction?
It's a fee some auctions add on top of the winning bid, often a percentage of the price. Check the auction terms so you can factor it into your bid.
Can I use a hard money loan to buy an auction property?
Often, yes, but not every lender does auction purchases. Ask your lender if they can fund it and close on the auction's deadline before you bid.
How long do I have to close after winning an auction?
It depends on the auction. Many give you about 30 days, and some give less. Read the terms carefully.
Ready for your first auction?
If you want help checking your numbers or lining up financing before you bid, I'm happy to help.
