Glossary / Premium bidding

Premium bidding

Premium formats run most deed sales (the price is the bid) and appear inside several lien systems once rates hit their floor. New Jersey is the cautionary textbook: after interest bids to 0%, premium decides the winner; the premium earns no interest, is held by the collector, returns only if the owner redeems, and escheats to the municipality after five years unredeemed. Colorado's premium is not refunded on redemption and earns no interest. Mississippi computes redemption regardless of the bid, so premium earns nothing there either.

The unifying rule: statutes pay returns on the tax obligation, not on the overbid. Professional max-bid math treats premium as acquisition cost and caps it — the amateur mistake is assuming a bigger bid buys a bigger return.

Premium formats have a behavioral trap built in: the premium feels like part of the investment, so bidders mentally credit it with the investment's return. The statutes disagree. In New Jersey the premium is a deposit against redemption — returned if the owner pays, surrendered to the municipality if five years pass without redemption — meaning the premium bidder's best case is a zero return on that tranche and a property outcome they must earn separately through foreclosure. In Mississippi, overbid doesn't even enter the redemption base. The professional habit is to state the premium policy of your state in one sentence before every sale ('my premium earns X, returns when Y, dies when Z') and to fold that sentence into the max-bid number. If you can't state it, you're not ready to pay it.

In practice: Indiana prices premium more kindly: the overbid is returned on redemption with 5% per annum, while the 10–15% penalty applies to the minimum-bid portion (IC 6-1.1-25-2). Maryland charges a high-bid premium on bids above 40% of full cash value, with no interest on the premium portion.

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