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Government auctions: Someone's forfeiture can be your gain

If you're in the market for a house or a car, you may want to add a federal government auction to your list of places to visit.

Actually, you can find anything from real estate, boats and planes to computers, jewelry and clothes at a government auction.

The federal government also auctions things such as airwave rights and forklifts, and county and city governments often auction property. But probably the best government auctions under one roof for consumers are put on by the U.S. Treasury Department.

Most of the real estate and merchandise has been seized from someone because of drug trafficking, money laundering, import violations or some other illegal activity -- or it was forfeited for nonpayment of taxes.

Their loss can be your gain if you know what you're doing.

"It's mayhem," says Walt Strzalkowski, president of Yacht Search in Fort Lauderdale, Fla., who is also a pilot. He went to a government auction hoping to buy some real estate but ended up buying a single-engine plane.

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"I saw the real estate selling for two and three times what I thought it was worth and I was astonished. I didn't even bid. It was mind-boggling. I knew what the airplane was worth, and when I saw the bidding drop off at a price lower than what I thought it should sell for, I jumped in."

Even if your budget limits you to smaller-ticket items such as computers, cameras or jewelry, be prepared for plenty of competition and know the value of the items you're considering.

"The guy is up there to confuse you," Strzalkowski says. "The idea is to build this aura of excitement and confusion. It forces people to think quickly and make a decision -- make a knee jerk reaction -- and it gets worse when there are two or three people who really want something and bid up the price."

A Treasury auction can be a good place to get your feet wet if you've never been to an auction. There's no entry fee and there is no buyer's premium. Some auctions tack a 10 percent to 15 percent premium onto your purchase to pay for their costs.

And, according to Britney Bartlett, spokeswoman for EG&G Technical Services, the contractor that runs the Treasury's auctions, many times you don't have to pay sales tax because you're buying from the government. But check with your local Treasury auction staff to make sure.

"We don't have shill bidders. There's nobody placed there to drive up the price," says Bartlett. "You'll see quantity and quality that you won't see at other auctions."

Preview the goods
Every Treasury auction has preview days when you can check out the merchandise.

Bartlett says you may get two weeks to look at a house prior to auction. Vacant land can be inspected anytime, unless there's controlled access. Personal property can often be viewed one or two days in advance of the auction. The time and place are announced.

If you see something you like, do some research to determine how much it's worth, says Victor Wiener, executive director of Appraisers Association of America.

"Anyone walking into an auction should have a certain comfort level. Be very clear about what you want and how much you want to commit. Don't be carried away by what others are doing. Know what type of mistake you can live with."

All merchandise is sold "as is." Many of the computers that are confiscated because they were used to commit a crime won't have a hard drive. Some cars won't have a fuel tank. Whenever something major is wrong with an item, it will be noted on the item.

"Bid accordingly," says Bartlett. "If you didn't have a chance to turn on a computer, what's it worth to you if it doesn't work? Cars might not be worth the sum of their parts. Resist the urge to buy something you haven't inspected."

Major Treasury auctions are held about every nine weeks at sales centers in Los Angeles, Edison, N.J., Miami/Fort Lauderdale, El Paso, Texas, and Nogales, Ariz.

Smaller Treasury auctions are held in locations around the country as merchandise warrants.

The above-linked Web sites will list the merchandise that's available two to three weeks in advance, and in the case of houses and buildings, there will usually be a picture and a detailed description.

Be prepared to pay
All purchases under $5,000 must be paid in full the day of the auction. Purchases over $5,000 require a deposit. If you're bidding on a big-ticket item, such as a boat, plane, house or even some cars, arrange your financing in advance.

"We don't mess around," Bartlett says. "You'll forfeit your deposit if you're turned down for financing."

On big ticket items you'll have to pay 10 percent of the total within three days, and you'll have to close the deal within 30 days.

Be prepared to pay with cash, cashier's check, Visa or MasterCard. No personal or business checks are accepted.

Also, not all merchandise is released on the day of sale. The government agency that seized the item will do a background check on you to make sure you're not the person it was seized from or a known associate of that person.

All of that type of information can be found in the conditions of sale. The conditions are posted in plain sight or are available in a handout at all auctions. The conditions detail whether the buyer is liable for premiums, when payment must be made and in what form, and other important things such as whether the buyer has to prequalify.

The government also lists conditions of sale on its Web site , but if you go to a Treasury auction be sure to read the conditions specific to that sale.

Don't expect to buy a Ferrari for $1,000 unless it's in such bad shape that's all it's worth. The government reserves the right to refuse the highest bid if it doesn't reflect the true value of the item. Money from the auctions goes into the Treasury Asset Forfeiture fund to help law enforcement and make restitution to crime victims, according to Bartlett.

Walt Strzalkowski says he tries to become familiar with anything he's interested in buying so he knows if there's potential to buy the item at a good price. He doesn't, as he puts it, "go in drooling to buy something."

"I think that's the important thing with an auction -- you can't be emotional. You have to be knowledgeable and put limits on what you're willing to pay. Auctions are to benefit sellers, not buyers. Put your emotions aside and don't bid on something if you don't know what it's worth. Be prepared to back away if it's higher than your assessment of the valuation."

If you want to go to a government auction, make sure it's the real thing. Some companies try to capitalize on the government's success and say they're selling seized government property at auction.

All ads for Treasury auctions have the seal of the Treasury and the name EG&G Technical Services. Ads for auctions at the major sales centers are placed in the Wall Street Journal and USA Today, and in your local newspapers if there's an auction in your area. Also, the receipt for any item you purchase should list the name of the government agency that seized it.

Another tip -- don't waste your money on books that bill themselves as "Guide to government auctions," or something similar. Bartlett says all the information you need about government auctions is free online on government Web sites.

Here are a couple of sites with good information.

Frequently Asked Questions

Buyer tips

-- Posted: June 12, 2002

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See Also
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Living below your means
15 signs you need professional debt-reduction help

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