How should I structure my HUD bid for best chance of winning?

Question

My wife and I are about to put a bid in on a HUD home. This will be a bid during the initial owner occupant 10 day period. We love the home and it's in a great area. HUD's as-is and list price is $114K for the property which is way less than the house is actually worth. It's insured with $2000 in repair escrow. Just needs a few minor repairs. The basement will need some form of waterproofing (which they didn't catch on the FHA inspection). **This would be an out of pocket expense after closing if we won the bid. We're approved for $120K FHA 203(b) loan. We've got about $7K-8K cash available to apply toward this purchase. How should we structure our bid to put us in the best position to win??? Our mortgage guy suggested we bid $100 over the list price and ask for 3% in seller concessions. We would then have around 4% total into the transaction but we would be getting a home with a lot of equity in it.

Shaun Reilly · Answer

You are a home buyer not an investor.

Decide if you care more about getting a good deal or getting the house.  You SHOULD care more about the deal then the particular conglomeration of building materials, but that isn't reality.

If you want to have the best chance to get your bid accepted then offer the most you possibly can.  HUD is pretty simple in that regard since you can't really mess around with other terms.

So figure out the absolute most CASH you have to put towards it and back into an offer price.  Since it is the NET that they care about put in for the 3% credit since you can pay more for the same cash investment by saving on those closing costs.

Keep in mind if you are doing 203(k) that the repair escrow counts towards the down payment requirement.

PLEASE NOTE that I'm just giving you advice to achieve the goal you asked about.  I do NOT advocate actually doing it...

Rob K. · Answer

There was a HUD house I bid on a couple months ago listed for $46,000. I think I bid a little over $50,000 and it sold for $70,000. You just never know.

David Beard · Answer

This is the same for HUD, but it's not the same for the buyer who would have to come out of pocket with the 3% to close.  He stated that his cash was tight.  Many, maybe most, FHA buyers need the 3% seller concession in order to get into the house with their limited funds.

Jason Ligon · Answer

Thanks @Jon Holdman

You are exactly right.  We are first time home buyers and I'll admit we have definitely made the mistake several times of putting too much emotional stake in a house just like your Ghostbuster.  Great clip! It has burnt us several times and caused a few arguments in our relationship.

Jon Holdman · Answer

@Jason Ligon I think you have a serious misconception of how other folks feel about HUD houses.  And the reality of the bidding process.  For better or worse in many areas investors do bid on these houses during the OO period.  Its not right, and I hope these people get caught, but it does happen.  If your area is relatively hot now and this is a good deal there will be other bids.

You're making a mistake by falling in love with a house.  Its just a house.  A pile of sticks and bricks.  There are dozens more just like it.  Maybe hundreds or thousands.  If you want a good deal, you can't be picky.  If you want one specific house, forget about getting a good deal.  With your agents help figure out what others might bid and bid more.

Mark Ferguson · Answer

@Jason Ligon

I wouldn't bet on that perception.  HUD homes are one of the best deals out there and my listings routinely sell for over list price.

Jason Ligon · Answer

Thanks for all the responses.  I'm not sure if they helped or confused me more because everyone had varying opinions. LOL.  We really want the house so I guess at this point I really need to dig into the numbers to find out how much we can really afford to come out of pocket keeping in mind how much the house is really worth. This is not for investment and will be our primary residence.  I need to figure out exactly what costs are not rolled into the loan with FHA.  I heard something about 1.75% PIM being out of pocket as well.  Is that the case for 203(b) loan as well?

This is a pretty hot area.  Yesterday we viewed a house in the same area that had just come on the market the previous day.  We I pulled up to the house there were people swarming like bees.  My realtor said there had already been 25 showings earlier that day and 7 bids put on the property.  This one wasn't a HUD but it was a comparable house in the same area with nearly the same asking price.

Hopefully people's negative perceptions of HUD will keep most folks from bidding on this.  I think a lot of people think of HUD homes as "those $1 houses for poor people".  Thank goodness for ignorance!

Mark Ferguson · Answer

@Winston Spence ,  but this one is in the initial 10 day bid period. It is impossible to know how many people are bidding or how much they are bidding. If it was after the 10 day bid period and no one had bid, then maybe a low bid might work.

Winston Spence · Answer

@Mark  Ferguson

If the property is already undervalued and noone is bidding, why not go the minimum HUD is trying to net, or REO for that matter. Just makes it a better deal.

How should I structure my HUD bid for best chance of winning?

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