With foreclosure rates spiking, more homebuyers may heed the siren song of the auction, a sound that can mean sizable savings for some. But it also might mean you're the proud owner of a money pit.

Opportunities to buy homes at auction are on the rise. Some experts say the share of homes sold at auction could double this year.

One potential advantage for today's auction shoppers is inventory. The number of foreclosed properties is clearly on the rise.

In 2007, borrowers lost 25,320 Colorado homes to forced foreclosure, almost double the number in 2006, according to the Colorado Division of Real Estate. Many of those homes could end up at an auction.

Risks for buyers

Colorado ranked fifth in the nation for foreclosures in February with a total of 6,737, according to RealtyTrac. That was a 27 percent bump from February 2007.

Foreclosed homes sold at auction present a risk to potential buyers because homeowners who have defaulted on their mortgages may take a physical toll on their houses before being evicted.

During that time "they could have been ripping out piping and plumbing," says Michael Clarkson, a broker associate with Re/Max Alliance in Westminster.

Clarkson says the number of homebuyers who go the auction route remains relatively low, but those who seek out auctions must do their homework.

Auction shoppers should consider the housing trends for the area in question.

"You can save 20 percent (on the house price), but if the market is going down, you're catching falling daggers," Clarkson says.

It also helps to examine the inventory trends around the particular house.

"If more houses are coming to market than are being sold, you may be in a declining area and you should be aware of that," he says.

Jorgen Frandsen, secretary with Foreclosure Solutions in Denver, says auction homes run the gamut from modest houses to expansive properties.

Homebuyers can work the auction circuit themselves, but Frandsen suggests teaming up with a realty agent.

"They can determine the true market value of a house," he says.

It takes cash in hand

Ben Anderson, a real estate auctioneer and member of the National Association of Realtors and the National Auctioneers Association, predicts auctions may make up as much as 15 percent to 20 percent of all real estate sales given nationwide foreclosure rates. Traditionally, auctions represent just 8 percent to 10 percent of such sales.

Anderson says auctions typically involve cash transactions, but cash isn't always king. House sellers can agree to financing arrangements.

National auctioneering firm Hudson & Marshall reported that winning bidders for its December 2007 auctions had to make a cash or check down payment of $2,500 or 5 percent of the selling price, whichever was higher.

In some cases, lenders will appear at the various auctions and offer approvals before the gavel swings.

Mark Marati, the employing broker for Lone Tree-based Benchmark Realty, says no matter how much inventory may be available at auction, most homebuyers aren't interested.

"The average Joe just looking for a house isn't looking for an auction house," Marati says. "They tend to need a lot of work. They're not easiest things to buy."

And he suspects auction inventory isn't as high as one might think.

"The banks don't want to give property away. . . . The auction is the last resort," he says.

The biggest reason a homebuyer might skip the auction process is the straightforward nature of paying the bill right then and there.

"When the gravel drops, you've got to write a check," he says. "If you can't, you shouldn't be there."

Tips for buyers at real estate auctions

· Conduct due diligence in advance of the auction. Inspect the property. Review any available documentation, such as previous inspections, appraisals, seller disclosure statements.

· Review the title search. The seller's representative usually requests this at the time of the listing.

· Arrange for financing. Clarify with the lender the qualifications and the amount available for a loan.

· Know the market. Check comparable properties and what they have sold for, and analyze nearby listings.

· Review the terms and conditions of the auction. Before auction day get a copy of the purchase agreement and the auctioneer's terms and conditions. Read and understand them.

Source: Ben Anderson, real estate auctioneer