Last Updated on September 17, 2025
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Investing in real estate is often seen as an expensive pursuit, but government auctions change that. When a property owner fails to pay taxes, the local government may foreclose and sell the property at a tax deed auction. These auctions can start with opening bids as low as $1,600, allowing everyday investors to acquire houses, commercial properties or land at a fraction of their market value. Tax deed auctions are a true government auction because the county sells the property deed to recoup unpaid taxes.
How Government Auctions Work
- Tax delinquency leads to sale – When property owners do not pay taxes, the county places a tax lien. After a waiting period, the government forecloses and sells the deed at auction to recover the taxes owed. The auction is open to the public, and bidders compete for the deed.
- Minimum bid equals taxes owed – The opening bid is usually the total of unpaid taxes, penalties and interest. Some counties set a fixed amount (e.g., $1,600) to clear old backlogs.
- Deposit and balance – Winning bidders must provide a deposit (often 10%) at the auction and pay the rest within a specified time. In some counties, the winning bid can later be assigned to another buyer, creating a unique arbitrage opportunity.
- Immediate ownership – Unlike tax liens, which only give the right to collect interest, a tax deed immediately transfers ownership of the property. The new owner may need to cure the title through a quiet title action before selling or financing.
- Varied laws – Every state is different: some sell tax deeds, others sell tax liens, and some allow hybrids. Always verify local rules with your county’s tax collector.
Example: A Hidden Deal in Philadelphia
At a recent auction in Philadelphia, 186 properties were listed with opening bids of $1,600. Many were postponed, leaving around 40 to be sold. Below is a simplified summary of two properties purchased by students of a tax‑deed training program. These deals show how investors can capture large equity spreads by doing their homework.
| Property | Opening bid | Winning bid | County assessed value | Estimated market value (comps) | Potential equity* |
| 1137 S. Peach Street (built 1925, 3 beds/1 bath) | $1,600 | $51,100 | ~$90,000 (county) | $220k–$275k (after repair value) | ~$170k+ |
| Commercial building (address withheld) | $1,600 | $37,600 | ~$80,000 | $150k–$200k | ~$110k |
| *Potential equity is the estimated market value minus the purchase price and rehabilitation budget. |
In the first example, the county’s assessed value and some online estimates suggested the house was worth only around $100,000, but comparable sales showed that renovated homes nearby were selling for $225,000 to $275,000. Because the county had not updated its values after recent market increases, the property slipped through with a low opening bid. After placing 96 bids, the student won the auction at $51,100. The winning bidder only needed to pay 10% ($5,100) upfront. They can now decide whether to rehab and flip the property, hold it as a rental, or assign the contract to another buyer for a quick profit.
How to Evaluate a Government Auction Deal
Finding undervalued deals requires more than looking at a low opening bid. Successful investors follow a process similar to that of a professional appraiser. Below is a simple how‑to guide.
- Pull comparable sales (“comps”)
– Appraisers use the Sales Comparison Approach, which compares recent sales of similar properties in the same area. Look for 3–5 sales within the last 1–6 months, ideally within a 0.25-mile radius. The comps should have similar square footage, number of bedrooms and bathrooms, age of construction, and location.
- Adjust for differences
– If a comp has an extra bathroom, better finishes or more land, adjust its price down to match your subject property. Similarly, adjust up if your property has better features.
- Check online valuations cautiously
– Tools like Zillow or PropWire can lag behind the actual market. Use them as a starting point, but rely on recent sales data and local knowledge. In the Philadelphia example, Zillow estimated $100k while actual sales were over $220k.
- Inspect remotely when possible
– Many investors cannot visit every property. Hire a local driver to take photos and videos, and use mapping tools to view the neighbourhood. Look for code violations, demolition liens or environmental issues that could wipe out your profit.
- Research liens and title
– Check court records, water liens, licenses and code violations. Unpaid demolition liens can be large; some properties in the example owed taxes since 1992. Ensure you can get a clear title after purchase.
- Set a maximum bid and stick to it
– Bidding is often in $100 increments. Determine your maximum purchase price based on the after-repair value, rehab budget and desired profit. Don’t get caught up in bidding wars.
- Plan your exit strategy
– Decide whether you will flip, rent, or assign the bid. Some counties allow the winning bidder to transfer the contract. For example, in Philadelphia, a student once assigned a bid in the hallway and made $5,000 in minutes.
Why Invest in Government Auctions?
- Low barrier to entry – Opening bids may be a few thousand dollars, allowing investors with limited capital to participate. In some counties, only a 10% deposit is required at auction.
- Potentially high returns – Because the opening bid is based on taxes owed, properties can sell for well below market value. The first example shows how a $51k purchase could be worth over $220k after repairs.
- Immediate ownership – Unlike tax liens, tax deeds give you ownership at the end of the auction. You control the property and decide how to monetize it.
- Accessible from anywhere – Many auctions are now online. Investors can bid remotely and outsource inspections. This is especially helpful if you live far from the auction location.
Risks and Considerations
While the potential rewards are high, government auctions carry risks:
- Overpaying – Competitive bidding can push prices up. Avoid chasing deals beyond your maximum bid and focus on properties with a clear margin.
- Hidden issues – Counties may not allow interior inspections. Repairs, environmental problems or occupant eviction could cost more than expected.
- Title problems – Curing title after a tax deed sale may require legal work, such as quiet title actions. Factor these costs into your budget.
- Redemption periods – Some states allow the former owner a redemption period after the sale, during which they can repay the taxes and reclaim the property. Check your state’s laws before bidding.
Frequently Asked Questions
A government auction refers to a tax deed sale where a local government sells properties to recover unpaid taxes. The auction may be held in person or online. Winning bidders pay a deposit and later the balance.
No. Many properties have issues such as structural damage, unpaid liens, or inflated bids. Always evaluate the market value using comparable sales and investigate liens and code violations. Some properties will be postponed or cancelled when owners pay their taxes before the sale.
Use the sales comparison approach. Identify three to five comparable properties that recently sold nearby and adjust their prices for differences. This helps estimate the after-repair value and set a maximum bid.
A tax lien gives the investor the right to collect unpaid taxes plus interest from the property owner, but not ownership. A tax deed transfers ownership of the property to the winning bidders. Tax lien investors earn interest; tax deed investors seek equity.
Conclusion
Government auctions offer everyday people the chance to buy real estate at discounted prices. As shown in the Philadelphia example, a careful investor can turn a modest bid into substantial equity. However, success requires diligent research, realistic valuations and awareness of local rules. Before you bid, learn your county’s process, study comparable sales, and plan your exit strategy. Real estate can build long‑term wealth, but only when approached with knowledge and caution.
