Eleven certificates won at an average 1.75 percent, nine redeemed in seven weeks, and the screen that caused it

This is a loss worth studying because everything about it goes according to plan. Bid down state, online sale, the work gets done. The bidder pulls 11 improved parcels with owner occupied history and current insurance on the property, which is the profile that redeems. Total placed: $19,340 face across the 11. The auction is competitive, which is known going in, and the average winning rate comes out to 1.75 percent. Two of them are won at 0.25 percent. Nine redeem between day 19 and day 52. Total interest received across those nine: $61. Fees paid: $10 per certificate at issuance, $180 in platform and registration charges, one $30 wire. So $320 of hard cost against $61 of interest on the nine, plus two certificates still outstanding at a rate that will earn roughly $70 a year if they run a full year. Check afterwards whether the state has a minimum return on early redemption, and in this case it does not. Some states set a flat penalty that applies whether the redemption comes in month one or month eleven, and in those places a 19 day redemption is the best outcome. Where the statutory rate simply accrues, the bidder has bought a negative return by being right about which parcels would pay. The error is upstream of the auction. The parcel screen is built around redemption probability, and redemption probability is exactly what makes those certificates worthless at 1.75 percent. The screen and the pricing are pulling against each other, and nobody wrote the two next to each other on the same page. What to do differently: set a floor rate before the sale and hold it, computed so the fixed per certificate cost is covered by a 90 day redemption rather than a 12 month one. On these numbers that floor is somewhere north of 5 percent, which would have meant winning two certificates instead of eleven, or none. Both of those are better outcomes. And read the redemption interest statute in the state before building the screen, because whether it is a rate or a flat penalty changes which parcels are even worth bidding on.