The three auctions: 100%, 75% and 25%
The same asset goes to auction up to three times, cheaper each round. The third has a catch.
The same asset goes to auction up to three times, cheaper each round. This is probably the most attractive part of the system, and where most people get burned.
If there is no bidder at the first auction, a second one shall be held after no less than five days, reducing the base by twenty-five percent (25%) of the original. If there are no bidders at the second either, a third auction shall be held after no less than five days. The third auction shall open at twenty-five percent (25%) of the original base and, in it, the bidder must deposit the entirety of their bid. If there are no bidders at the third auction, the assets shall be awarded to the creditor at twenty-five percent (25%) of the original base.
The numbers, with an example
Take an original base of ₡50,000,000. The full schedule looks like this:
| Round | Base | Deposit to take part |
|---|---|---|
| First (100%) | ₡50,000,000 | ₡25,000,000 (50% of the base) |
| Second (75%) | ₡37,500,000 | ₡18,750,000 (50% of the base) |
| Third (25%) | ₡12,500,000 | 100% of your bid |
Why bargains rarely survive to the third round
An attractive asset sells in the first round. One that reaches the third usually got there for a reason: it is occupied, it has a registry problem, the base was far too high, or something about its condition scared everyone else off. Finding an overlooked gem is possible (it happens) but the right question when you see a third-round auction is “what did everyone else see that I am missing?”.
If nobody shows up at the third round
The asset is automatically awarded to the creditor at 25% of the original base. That is why so many “failed” auctions end with the bank keeping the property and selling it later on its own, which is exactly where a large share of so-called bank auctions comes from.
The creditor plays by different rules
It helps to know who you are bidding against. A creditor with a preferential right of payment does not have to deposit anything to take part, provided the bid is credited against their own claim, which for this purpose is set at principal plus 50%. If they bid above that, they must deposit like anyone else.
Example: how far the bank can go without spending a colón
- Principal owed
- ₡40,000,000
- Plus 50% (by law, for this purpose only)
- ₡20,000,000
- Can bid without depositing up to
- ₡60,000,000
So in an auction with a ₡50 million base, the creditor can keep improving your bid without taking money out of pocket up to that ceiling. Knowing this saves you from a bidding war you cannot win.
Takeaways
- The three bases are 100%, 75% and 25% of the original base.
- At least five days must pass between rounds.
- In rounds one and two you deposit 50% of the base; in round three, 100% of your bid.
- If nobody bids in round three, the asset goes to the creditor at 25%.
- A very low price is almost always a question, not an answer.
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