Buying a Foreclosed Home Isn't Easy in Today's Market

Potential buyers — real estate investors as well as everyday folks looking for a good deal on a home — inspected the property lists posted outside the courtroom before filing into the crowded courtroom. The banks' representatives, easily recognizable in their dark suits, lugged around bulky suitcases and folders before taking seats in the front rows.

But once the auction began, the excitement faded away. One house after another sparked little enthusiasm among the buyers and was sold back to the bank carrying the mortgage.

In all, only 10 of the 30 houses for sale were bought by third parties. Mickey Higgins, who represents banks in foreclosure auctions, sold just one of 11 listings he had for that day. That's not unexpected, he says, as finding good deals in foreclosures these days is much harder than it has been in the recent past. "During the late 1990s and early 2000s, flippers had their glory days of buying houses and selling them at a profit," he says. "Now, even the professional investors who come here every week just sit with their hands in their pockets."

This may sound counterintuitive to just about anyone who reads the news. After all, the number of foreclosures on the market is rapidly increasing. In the first two months of 2007, the number of homes that went into foreclosure was up 12% nationwide compared with the same time last year, according to RealtyTrac.com, which tracks foreclosure data and provides access to such listings for a monthly fee. And that's just an average. In Nevada, which has the highest foreclosure rate in the nation, foreclosures were up 77% in February compared with the same time last year. (New York City saw a 47% increase between January and March this year compared with the same period in 2006, according to the Neighborhood Economic Development Advocacy Project, or NEDAP.)

This surge has spiked interest among the public and businesses alike. Earlier this month, Yahoo joined a multitude of services offering access to foreclosure listings with its new Foreclosure Center, formed in partnership with RealtyTrac. Foreclosure.com, which also provides access to listings for a fee, saw paid membership increase 35% this January and has grown at that pace every month since, according to its CEO Brad Geisen.

But whether these folks are finding any great deals is another story.

If anywhere, you'd expect foreclosure deals to be plentiful in Adams County, Colo. Last year, the region had one foreclosure listing for every 14 households, the highest rate in the state of Colorado, which is second only to Nevada in foreclosure rates nationwide. (And even in Nevada, the highest foreclosure rate was one for 30 households in Clark County.)

But that doesn't mean people are snatching up deals. Carol Snyder, who oversees foreclosure listings as Public Trustee for Adams County, says foreclosure auctions are quite uneventful. "Last week we had 114 properties that went to sale, and we had five people [attend]," she says. "One was bidding. And he bid on one property out of the 114."

The reason? Foreclosures aren't the quick path to riches many imagine. "Some people show up [at the auctions] to observe and see if it's something that's easy and a quick way to make money," she says. "A lot of them find out it takes a lot more work than they think."

To be sure, getting a deal on a foreclosed property isn't impossible. But before you cough up the $40 monthly fee for a foreclosure-listing web site or worse yet, hundreds of dollars for a seminar, make sure you fully understand the challenges.