Although RealtyTrac now allows subscribers to bid online for a limited number of foreclosure properties, most foreclosure auctions still require that you show up in person to bid. Auctions can be a great way to purchase a property well below its market value, but they can be intimidating for an uninitiated bidder trying to compete against the seasoned investors who typically attend them. The bidding moves rapidly and can seem like a dizzying blur.

But no matter how intimidating they seem, foreclosure auctions are public events that are open to anyone. In fact, if you’re interested in buying at a foreclosure auction, we recommend that you first attend several auctions just to observe. That observation and the following tips will help you become familiar with the process and give you a greater chance of becoming a successful auction buyer.

Know when and where, make time to prepare
While the details concerning public auctions differ according to state foreclosure laws, usually foreclosure properties are auctioned off at the site of the property or at the courthouse in the county where the property is located. The date of a scheduled auction is typically posted at the courthouse, at the actual property and in a local newspaper.

RealtyTrac maintains a daily updated list of auction properties nationwide, along with property research tools, giving members the information they need to prepare for an auction. To find auction properties on RealtyTrac, select “Auction” under Property Type on your property search. The property details include the auction date, location, opening bid and trustee information. The trustee is the lender’s representative in charge of the auction proceedings.

Most likely, you’ll be bidding on a property without really knowing its condition on the inside, so it’s important to do any research you can in advance to minimize the risk of over-bidding and increase your return on investment. RealtyTrac members have access to Estimated Market Value and Comparable Sales for auction properties to help them accurately assess the property’s value.

It’s also crucial to research a property’s title to find out if you’re bidding on a senior or junior lien at the auction. Members have access to this information with RealtyTrac’s Lien & Loan History.

“You have to know the property inside and out and know the party that is auctioning the property is, in fact, in the first lien position,” advises author and real estate investor T.J. Marrs, who noted that if you buy from a party that is in a secondary lien position, you could be responsible to pay for the first lien in addition to the auction price.

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Game Day: What to do
The morning of the auction, it’s a good idea to contact the trustee to confirm whether the auction is still taking place as scheduled, since lenders sometimes change the date of the auction at the last minute.

This is also a good time to verify the opening bid for the property, so you’ll know what to expect and be better prepared to plan your bidding strategy.

The rules (and art) of bidding
The lender typically sets the opening bid by calculating the full amount owed on the loan. This includes the principal, interest, any late charges, penalties and foreclosure fees (as allowed by state law). At the auction, proceedings are opened when the lender or official running the auction announces the sale and the opening bid amount, with bidders free to call out bid prices until a high bid is reached.

At your first auction, knowing what not to do is almost as important as knowing what to do. The day of the auction, it’s important to feel confident in your ability to bid, so that you won’t be distracted by comments or “advice” given by other bidders. Remember, everyone attending the auction is likely there to bid against you, so it goes without saying that you’ll be hard-pressed to find a mentor to guide you through the process and look out for your best interests.

“Since you’re paying cash and there are a lot of unknowns, certainly you should keep your maximum bid in a safe range, like 60 to 70 percent of market value,” suggests Marrs, adding that one might be willing to go higher than 60 to 70 percent in more competitive real estate markets.

Handing over the money
Once congratulations are bestowed on the highest bidder, it’s quickly time to pay up. Depending on state foreclosure law, you’ll be required to pay anywhere from 5 percent to 100 percent of the winning bid in cash on the spot, with the remainder due in a few days or a few weeks. So it’s important to have your finances in order well before the date of the sale and come to the auction with cash or certified funds such as a cashier’s check, money order or a bank certified check made payable in the buyer’s name.

Before moving in your furniture…
Once you’ve placed the high bid and paid in full, the property is yours for good, right?

Not exactly.

Like anything else, there’s a bit of fine print to be aware of when buying at a foreclosure auction. In some states, the original owner of the foreclosed property has what’s called a right of redemption. For a set amount of time (sometimes up to 12 months), the original owner has the right to buy back the property by paying the full amount owed for the property, plus any applicable fees and interest. It’s a good idea to check the foreclosure laws in your state to understand what right of redemption exists. Although these procedures are rarely taken advantage of, it’s important to know what they are.

Foreclosure auctions certainly present great opportunities to grab bargain deals in the real estate market. But they’re not for the faint of heart, nor the unprepared. You can demystify the process and participate with confidence if you follow the tips above, learn the foreclosure laws in your state and observe a few auctions in your area.

Good luck and happy bidding!

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