Skip Inspection on a HUD home?

Question

Internet searching lead to horror stories on this, but everyone's talking about older HUD homes. I've got one under contract half off appraised value of $165k. PCR is clean. Home is built in 2006, new neighborhood, no trees, unoccupied less than 8 months. Why go through the trouble, cost, and risk of dewinterizing, installing meters, turning on utilities, and rewinterizing prior to closing?

Mark H. · Answer

If the deal is that good, would a defect (even a $3k one) make you walk?  If the answer is no, an inspection is a waste of time & money that could be better spent on repairs..  and you *will* have repairs, even if your inspector claims the house is perfect.  Inspectors cant look inside walls, foretell the future, or hypnotize pretty girls.  They walk through and report what they see..  you probably have a father-in-law or a grumpy uncle who would be glad to do the same thing for a pizza, assuming you cant do it yourself.

Michael P. · Answer

Christian what is your background in real estate?  If you are very experienced I wouldn't get an inspection.  I never get inspections on houses I buy, however I would consider myself well versed in knowing what is needed to a house.  I have purchased a ton of HUD houses over the years, usually they are pretty jacked up.

PM me the address of the house if you want me to do a rough estimate of the comps in the area.  Half value seems like a deal of a century if it only needs 7k in work.  That is what I am more concerned with from reading your post.

Rob K. · Answer

If you're buying a HUD home as an investor, there is no inspection period once the offer is accepted. They want you to do your inspection prior to making an offer. It's a ridiculous system, but it's the government.

If you're an owner occupant, there is a ten day inspection period, but I've heard of people having a hard time getting their deposit back.

With HUD, you need to proceed with extremem caution.

They also don't provide title insurance. They claim that their titles are "clean". With all of the robo siging, mortgage fraud, and mortgages changing hands multiple times, I would HIGHLY recommend purchasing title insurance.

Account Closed · Answer

The village has spoken. I'm working on coordinating the inspection. Thank you all for you input.

Account Closed · Answer

Interesting. What's your line of thinking?

Account Closed · Answer

This is OO. Need a place for my growing family. I'm budgeting $7k in cosmetics, home value is on low end for the neighborhood. I really believe this was a rare steal. Will consider the advice, thanks!

Steve Babiak · Answer

Remember that HUD houses are the "fallout" from (failed) FHA loans; and you know that the FHA loan qualifications are as close to zero down as we have - so those occupants almost always have no extra savings to fall back on as reserves for repairs.

Joe Delia · Answer

Unless you're a seasoned vet, this is terrible advice.

Priscilla Z. · Answer

I've bought and sold two HUD homes, don't believe the reports, or the appraisals for that matter.  Do you own comparables, and if it's  OO and you and your family will be living there, get the inspection.  If you were an investor going to rehab it, that's a different story, but OO, inspect it.

Just my opinion :)

Mike H. · Answer

It depends on what your risk tolerance is. I'd definitely have a foundation guy in there. But as for hvac, electrical and plumbing, just assume that you're going to have some costs there and call it a day.  The fact that the house is so new, I wouldn't be as worried about the electrical and plumbing - provided you can still see it.

If the hvac is all there - a big if - then given how new it is, I would assume no more than 1,500 for repairs there. For electrical, again, given that its so new, $500. And plumbing, I always give myself a grand even if it looks good.

That typically covers about 90% of the HUD deals I've done. And very few of mine have been as new as that deal.

As long as you have that contingency factored in, you should be fine. But the foundation stuff is where I like to have someone look at if something looks a little off - cracks in foundation, or even walls.

Skip Inspection on a HUD home?

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