Foreclosure filings in February are up 60 percent from a year ago. That’s 223,651 homes that received foreclosure filings last month. Nevada, California and Florida have the highest foreclosure filing rates in the nation. In the past year, 1,000 Florida homes have been auctioned. Five hundred homes will be auctioned off in Florida next week in one of the largest auctions in history, which will last for six days. Even Miami Dolphins quarterback Dan Marino attempted to auction off his Florida home last month, and Michael Jackson’s Neverland Ranch is in default and scheduled for auction this May. The Senate came to a tentative deal on Wednesday to help homeowners facing foreclosure and buyers who are buying foreclosures. In the biggest gift in U.S. history, the Senate has agreed to give a $7,000 tax credit to any person who buys a foreclosed home.
Auctions can be a quick way to come out with a steal of a deal, but they can also eat your wallet alive if you’re not prepared. Here are a few things to think about before going to an auction:
Don’t buy in an area that’s drenched with foreclosures If the market is full of foreclosures, it’s a safe bet the values of the properties are still going down. It is better to wait for the market to stabilize a bit before jumping in there.
Research the public schools
In family areas, like Summit Park, N.J., how good the schools are determines value more than any other factor. You can find free school reports online at homefair.com.
Inspect the property prior to the auction
Some auctions will allow an inspection a few days prior to the auction; some only the day of, some not at all, and some even allow a contingency for inspection after the auction.
Bring a contractor with you to the inspection
A contractor can estimate the cost of repairs (like roof damage, broken windows and electrical repairs). You need to know if the saving you will make is enough to cover the costs of a renovation.
Even if you’re not allowed in, check out the property with a real estate agent
A local broker is in the best position to tell you what the home is really worth and has recent sales data from the local MLS.
Ask for the right to rescind the contract
Most auctioneers will give you a three-day review period. Without it, you can be held responsible for 25 percent of the cost of the house if you don’t close.
Ask if there’s a ‘reserve amount’
If there is a reserve amount placed on the property, the owner has the right to refuse your bid if it’s below the reserve. So even if you’re the winning bidder, you still may not get the house. An “absolute” auction means a deal’s a deal, regardless of price.
Check prices of comparable homes online
Look for homes in nearby or similar areas with the same number of bedrooms, baths and amenities. You could also shop the market yourself, so you get a very clear idea of what properties are selling for. This will not only give you peace of mind, it will also give you confidence when you get to that scary auction.
Get prequalified for a mortgage
Most auctions mandate it, and if you’re unable to get financing after you win the bid, they can still hold you responsible for 25 percent of the cost of the home.
And for the big day, when you’ve finally plucked up the courage to go ahead, remember to:
Bring pictures of the properties with detailed information
You don’t want to get mixed up and bid on the wrong property in the heat of the moment!
Decide on your maximum bid before you go
If you’re competitive by nature, it’s too easy to get carried away and pay more than you wanted to. List the properties you are planning to bid on and write down how much your maximum bid will be. You will base this figure on the research you did when scoping out the market.
Bring a bank check or cash
Most auctions require a 5 percent deposit, and do not accept personal checks.
Wait out the bidding war
When several bidders are outbidding each other, hold back your bid until the action cools down. Otherwise, you’ll just add fuel, and possibly thousands of dollars, to the fire.
Bid on the properties at the top of the list
The first few properties typically sell for the cheapest price, because most people “wait to see” what the properties sell for before jumping in.
Dress like a millionaire and stand close to the auctioneer
Other bidders will assume you’re from the bank and will stop bidding when you speak up.
Find out if there’s a ‘buyer premium’
It’s an optional 5-10 percent the auction house can charge you if you hold the winning bid.
Try to be confident when you get to the auction, if you have done your research and you have set your maximum price, nothing very terrible is going to happen to you and you may just walk out the proud owner of some bargain real estate.
Resources to help you in your foreclosure hunt:
Hudsonandmarshall.com: America’s largest auction company lets you search their auctions for free and bid online at hudsonandmarshall.com.
NAArealestateauctions.com: The National Auctioneers Association has a Real Estate MLS Listing online where you can see auctions all over the country for free.
RealtyTrac.com: You get a free one-month trial, but you have to enter your credit card information and remember to cancel before the end of the month. Otherwise, they will charge you $50 a month.
Foreclosures.com: Works the same way as RealtyTrac.
Propertyshark.com: You need to buy a $20 subscription per month to see the available properties.
USA Today: They recently added a listing of upcoming auctions to their ‘Deals & Destinations’ sections on Fridays and ‘Money’ section on Tuesdays.
For more of Barbara Corcoran's real estate tips and advice, visit barbaracorcoran.com.