Tips for bidding on a foreclosure

Foreclosed properties are piling up faster than they can be sold, but that doesn't mean buyers can snap up a great house with little effort. Quality properties in good locations now draw multiple offers when priced right. Here are some tips for extracting gems from the rubble.

If a home you want has been on the market for several weeks, it is probably overpriced, says Sean O'Toole, chief executive of ForeclosureRadar, an online seller of default data. Banks may be willing to accept a lowball offer on such properties to get them off their books, especially at the end of a quarter. The end of December is an especially good time for buyers, says O'Toole, who has bought and sold more than 150 foreclosed houses.

When an attractive -- and attractively priced -- property hits the market, lowballing can backfire, O'Toole said. Banks selling houses generally follow a formula that allows for substantial price reductions only when houses don't sell for a specific number of weeks or days. Experienced foreclosure buyers say that for high-quality homes, it's best to offer close to list price or a quick escrow, perhaps 15 days. A fast escrow can prevail over an offer with a slightly higher price. For an especially desirable house, it might be necessary to offer both a strong price and a quick escrow.

Auctions -- the kind you see advertised aggressively these days -- might be a convenient way to see many properties quickly, but they aren't necessarily full of screaming bargains. Many of the houses sold by auctioneers had failed to sell on the open market. They may be fine homes that were marketed poorly, but they could also simply be duds. Sellers are hoping the competitive auction atmosphere will get buyers to bid up prices. You'll have to decide whether it's a game you think you can win.

-- Peter Y. Hong