As I wrote in my November 19 post, “Foreclosure sales continue to represent good deals for savvy real estate investors and other home buyers in the area - in October the median price of a foreclosure sale in Maricopa County was 9 percent less than the median price of a traditional sale.”

I’ve written before (last on November 17) about investing in foreclosure properties.  But I’ve mostly concentrated on tips for buying properties directly from the seller (the bank) — or even trying to negotiate with the homeowner before the property officially becomes bank-owned.

I haven’t blogged about buying a foreclosure property at auction, a process that is becoming increasingly popular.  So that’s the topic of today’s post.  Information comes, in part, from the Arizona Republic’s article “Do your homework before home auctions.”

A home auction can be a great way to find a foreclosed home at a good price.  But know that while the Arizona Department of Real Estate does require home-auction companies to have a real estate license, it doesn’t regulate the auction process itself, so even manipulative tactics are not illegal (though “frowned upon” by above-board auction companies, according to the Republic article).

If you’re thinking about bidding on a home at auction, consider these tips first.  As I always say, Knowledge is Power!

Auction Tip #1: Read the Rules

“Every auction has an extensive set of terms and conditions explaining the rights and obligations of buyers and sellers. Those rules are generally posted on the auction company’s Web site and are always posted on site at every live auction. It’s also recommended that you observe at least one home auction before participating in one.”

Auction Tip #2: Do Your Homework First

This applies whether you’re buying a foreclosed home at auction or from the bank or property owner directly.  First, check out what other similar foreclosed properties in the same neighborhood sold for — use those prices to determine the “fair market value” of the property.

Second, inspect the property.  Sellers have open houses in advance of the auction so that prospective bidders can see the properties. Consider bringing along a home inspector and/or real estate agent to help you spot problem issues.

Finally, add onto the “fair market value” costs for repairs — ideally, you’d have a home inspector give you an actual estimate; if not, add 10%.  Also, add in the auctioneer’s fees — which vary but are often around 5%.  That will give you the price you should target in your bidding.

Once you’ve started bidding, stick to the maximum price you’ve set for yourself.  Don’t get caught up in the excitement of bidding, or tricked into thinking that because there’s a lot of interest in the home at auction, you’ll be able to resell it for more than fair market value later.

Auction Tip #3: Come With Financing

Most auctioneers require bidders to have a cashier’s check with them, typically for $3,000-5,000.  In addition, if yours is the winning bid, you’ll be expected to pay a percentage of the home’s value on the day of the sale — maybe a total of 5% or so — as earnest money.

Then, you’ll typically be expected to close the sale within 30 days of the auction, so make sure you’re pre-approved for financing or have cash.  If you fail to come through and close the sale within the designated period, you may well lose the earnest money you paid on the day of the auction.

Auction Tip #4: If It Looks Too Good To Be True, It Probably Is

Auctioneers sometimes start bidding at ridiculously low prices — $15,000 on a home that’s valued at $300,000, for example.  That doesn’t mean the seller will agree to such a low price.  In fact, most often sellers set a minimum price that they’re willing to sell for, called a “reserve price” which is not disclosed to bidders.

Plus, know that the seller has the right to refuse a sale, even if the reserve price has been reached.  According to one industry insider interviewed by the Republic, “If the seller does choose to call a no-sale on the auction, that’s up to the seller.”

Auction Tip #5: Get Help

As with any foreclosure purchase (or any other home purchase), your life can be made much easier if you enlist the help of an experienced real estate agent.  The experts at myphoenixmls.com have been helping people buy and sell foreclosure properties successfully for a long time — we can help you, too.

Auction Tip #6: Caveat Emptor

As in any real estate transaction (or any transaction, for that matter), it’s buyer beware.  It’s up to you to do your homework before auction and to protect yourself — no one else will.

What do you think?  Have you bid on/bought a home at auction?  What was your experience like?  Click on the “Comments” link and join the discussion!