Analysis by PropertyIQ reveals mortgagee sale properties are snapped up at an average 16 per cent discount off their estimated market value.

Research director Jonno Ingerson studied mortgagee sales from January 2004 until March this year and says 88 per cent of those properties sold below their market value at the time, while for regular sales that figure is only 50 per cent. That proportion selling below market value hasn't changed as the volume of mortgagee sales has climbed, and neither has the average discount.

Mortgagee sales have trebled in the past year, sales data from Terralink shows. Listings have jumped a similar amount on Trade Me and realestate. co.nz, and the word "mortgagee" has been one of its most popular search words.

It is often used by real estate agents in advertisements to capture the attention of buyers.

Alistair Helm, chief executive of realestate.co.nz, says real estate agents will advertise properties as mortgagee sales to "lure people in" on the premise of a great buying opportunity, then take them to auction and achieve a higher price than what was expected by the mortgagee.

John Ross, of Professionals Upper Hutt, acknowledges promoting mortgagee sales frequently results in "run away successes" because buyers become "hooked thinking they'll get a great bargain".

"We put them in our auction room and many times we've sold above expectation, even surprising ourselves," Ross says. Despite Ingerson's data supporting the public perception that mortgagee sales offer a bargain, Helm says the reality is demand in the market is now driving sale prices to the same level they'd be in a regular sale.

Perhaps this explains why canny property investors like Trevor Rapson - who unabashedly describes himself as "a vulture waiting to pick over the corpses of ill-advised investors motivated by greed and fear when they fall over" - maintains there are no bargains to be had at mortgagee sale. In fact he says "uninformed" buyers invariably pay too much at mortgagee sales.

Property trader Geoff Castles, of South Auckland Properties, agrees "you don't often get a bargain at a mortgagee sale". His company buys 40 to 50 properties a year, and of that only about 10 are bought at mortgagee sales, even though he attends all Barfoot & Thompson's auctions of mortgagee sale properties. "As property dealers we're looking for a bargain all the time, but at a mortgagee sale I think you get a pretty realistic, fair price because you end up bidding against a lot more people."

Mortgagee sale purchasers should try to find out as much as possible about the property before getting caught up in the auction action. It's worth being extra careful, particularly when reviewing the legal documents and assessing just how much risk the seller is trying to off-load. Always get an experienced lawyer to review the documents.

Mortgagee sales can be particularly risky because they are often apartments, units or town houses in either new developments, half finished developments or "typical" rental properties that come with baggage. The baggage can be a tenant or an occupant who is grumpy, about to leave, or not guaranteed in any usual way. Or the baggage may be the building itself if it is leaky or damaged.

Most mortgagee sales in the past six months have been forced by finance companies on developers or rental property owners and tend to be either developments, sections or recently built rental properties that have a different set of nuances than a regular house in the suburbs. Mortgagee sales are also inherently more complicated because there can be several players involved in the selling process and they often have different motivations.

Nabbing a bargain
1 - Check to see if the property has a proper code of compliance certificate and the correct building warranties. A bank or finance company will want to unload the property with the least possible risk.

2 - Does the property come with the correct guarantees over title and boundaries? The phrase "as-is, where-is" might be fine for a car but it's dangerous for a house or apartment.

3 - Is the tenant included in the deal? Guarantees about rental income and length of tenancy can be particularly fragile in any mortgagee situation.

4 - Is the occupant out of the building? Sometimes the owner may be the occupier and may be unhappy about being forced out by the bank. Getting a court order to remove the occupier can be expensive and dangerous.

5 - What is the relationship between the first and any subsequent mortgage holders? There may be disputes in the background about security. Also, some banks choose to insure mortgages with mortgage insurers such as PMI or Gemworth. Sometimes these insurers reject mortgagee sales where they would have to stump up the difference to the bank because the sale price is less than the mortgage amount.

- Source: Tim Jones, property lawyer, Glaister Ennor