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Twelve Tips to Buying a Home at Auction

Last year was one for the books.

Foreclosure filings soared a staggering 81 percent over 2007, according to RealtyTrac, as one in 54 U.S. homes suffered the dreaded "Notice of Assessment Lien Foreclosure Sale" stigma.

This year? The numbers will be large again.

For bargain-seeking homebuyers, such doom-and-gloom translates into the dawn of opportunity -- a chance to net that elusive "steal of a deal" foreclosure house.

Not surprisingly, 2009 will be a record year for home auction numbers, says Rob Friedman, chairman of Irvine, Calif.-based Real Estate Disposition Corp., or REDC, which will preside over an estimated 500 auctions by year's end, the most in the firm's 19-year history.

For many people, it will mark the first time they attend a home auction -- either a large auction like REDC's or those smaller, trickier "trustee auctions" routinely conducted on courthouse steps around the country. Both can be intimidating for novices and fraught with unseen peril, particularly the latter.

In the larger sessions, which typically feature dozens of foreclosed homes in a sizable geographic region, novice attendees might feel lost in a sea of bid-calling, whistle-blowing and exotic finger signals. An estimated 1,400 people attended a March auction at New York's Jacob K. Javits Convention Center, twice the number that attended last year's auction at a much smaller site.

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Interested parties should test the waters by attending a smaller auction as an observer, experts suggest.

"Getting a steal at auction boils down to preparation," says Friedman, whose firm presided over the New York event. The biggest auction mistake, he says, is lack of preparation.

"You have to set out to quantify risk, inspect the property well and then quantify the necessary repairs and run price comparisons, or 'comps,' in the neighborhood so you'll know the values," he says.

Depending on the size of property, bidders at these auctions will usually need to bring a certified check for $5,000, made payable to their own name, to show the auction firm they have legitimate intent, Friedman says. The successful bidder then signs the check over to the auction company. Losing bidders simply redeposit the check in their accounts.

Larger auctions usually have two or three of the largest mortgage lenders in attendance, though buyers "are certainly allowed to go to their own lenders," Friedman says.

Then there's the matter of the "buyer's premium." REDC and similar firms such as Williams & Williams usually charge a 5 percent fee for their services. Friedman suggests that would-be buyers add that sum into the calculations of the amount they are prepared to pay at auction. Unlike trustee auctions, homes at these events nearly always have free-and-clear liens and up-to-date property taxes and fees.

How to steal a deal...read more