“Buying foreclosed real estate at an auction is like having a license to steal,” says Larry Blachman, a Realtor who specializes in foreclosures and author of Buying Foreclosures at a Trustee’s Sale.   But buying foreclosed homes at an auction is also probably the most dangerous way to purchase real estate — unless you know how the process works.  “If you know the game, you can make a killing; if don’t, you can get killed,” added Blachman.
 
RealtyTrac expects foreclosure activity to rise in the next couple of years, meaning more foreclosed properties will be available for home buyers, investors and real estate agents. But successfully buying foreclosed properties off the auction block isn't that easy. It requires knowledge, planning, preparation, patience and perseverance.  
 
Before taking the plunge, however, spend a few months researching the market and reading up on foreclosure investing.  Begin the process by researching foreclosures in RealtyTrac’s vast database, targeting neighborhoods and communities that you are interested in and familiar with. Read the laws and make sure you understand the legal process.  Moreover, make sure there aren’t any IRS liens, other tax liens, second or third mortgages, bankruptcy filings or any other monetary encumbrance.
 
Next, attend several auctions as an observer to watch and listen to how the auctioneer and bidders interact. The purpose of this exercise is to become knowledgeable about how the auction process works.  Pay particular attention to the rules of the game.  Observe “the regulars” who show up again and again.  Don’t try to get too friendly with these regulars; they will be your future competition.
 
After attending several auctions as an observer, use your RealtyTrac foreclosure data and drive by several of the homes to check them out.  If the property is empty go inside and do a visual inspection, paying particular attention to the roof, kitchen, bathrooms and foundation.  Take careful notes.  Narrow your list to only one or two homes to bid on. You’ll also want to estimate the value of the property and set a maximum bid of about 60 to 70 percent below the market value, factoring in any repair costs.
 
Once at the auction, follow these rules:  Only bid if you see one of the regulars bidding.  Never be the first one to bid.  If you bid, raise your bid in small increments.  In California, if you are the winning bidder, you need to pay the entire amount in cash or cashier’s checks, so bring several checks in different denominations.  Know what your top bid is going to be — and never bid above your ceiling. 
 
Buying foreclosures at the auction can be a smart investment if you know how the system works.   At RealtyTrac, we want to arm you with the best information so you can make a killing at the auction — not get killed.