Glossary / Bid-down interest

Bid-down interest

Bid-down auctions transfer surplus from investors to the tax system: competition, not statute, sets the real rate. Their defining empirical fact is compression — in Maricopa County, Arizona, winning rates commonly clear at 0–3% against a 16% cap. The format rewards floor discipline (a written minimum acceptable rate), county selection (thin rooms clear near the cap), and the humility to win nothing.

Contrast formats: fixed-rate states (Iowa 24%, Kentucky 12%) award full statutory rates with competition moved to another dimension or to a drawing; premium states compete on price. Same asset class, three auction mechanics — know which one your state runs before modeling any return.

Bid-down design has a quiet second effect: it sorts investors by information. The clearing rate in a county is information — about redemption likelihood, competition, and parcel quality as the room perceives it. Rates clearing near the cap signal thin rooms or parcels the locals doubt; rates clearing near zero signal either prime collateral or herd behavior. Iowa's designers sidestepped the whole signal by fixing 24% and competing on a different axis; Kentucky's drawing removes price discovery entirely. Neither is irrational — each state chose which scarcity to auction. Your edge in a bid-down state is remembering that the auction reveals the room's opinion, not the parcel's truth: your research, not the clearing rate, is the estimate to trust.

In practice: Ohio certificates bid down from 18% (ORC 5721.32(C)) — but subsequent taxes the holder pays still accrue at 18%; Louisiana's new system (from Jan. 1, 2026) bids down from 1% per month to a 0.7% monthly floor in 0.1% steps, plus a 5% redemption penalty.

Definitions verified 2026-10-30 against the sourced state-law dataset. Educational only, not legal advice.