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Updated almost 5 years ago, 02/14/2020

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Brett Alphin
  • Real Estate Agent
  • Los Angeles, CA
62
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53
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Successful HUD Bidding Strategies

Brett Alphin
  • Real Estate Agent
  • Los Angeles, CA
Posted

Hello BP,

 I wanted to share some tips that I've learned about making winning bids on HudHomeStore.com. This strategy is good for when you know you want the property, it's priced correctly, and you want to buy it for a small discount. There are some other ways to bid and win them for less, but this one I have found works almost every time. 

Let's call it the 89% rule. 

What I figured out through research and then putting it to work is: 

If your bid is 89% of the asking price NET to HUD, then you almost always will get an accepted offer. 

How do you do that? Lets say the asking price is $120,000. Applying the 89% rule, your offer needs to NET 106,800 to HUD. Meaning, you'd need to add (negotiable % with your agent but for the sake of this post) 3% commission for your realtor, and 3% for the listing agent. So, you'd add $6,408 to your 106,800 and you'd have $113,208 for your total offer. Your bid of $113,208 nets HUD 89% if their asking price. Since you're bidding against a computer and the computer is basing it's acceptance, counter, or rejection on certain thresholds, 89% net is a winner winner chicken dinner almost every time. And you've saved $6,792. 

Like I said before, there are other strategies for different thresholds (IE: how long the property has been listed, etc.) but this one works for me every time. When the property is priced right and you know you want it, apply the 89% rule and you'll win almost every time. 

Happy Bidding!

www.hudhomestore.com

PS:

Some other winning tips pulled from the web:

(Keep in mind...each property has its own winning threshold)

1. Try to bid at the end of the month preferably the last Thursday of the month.

2. Uninsured properties tend to go at lower prices than Insured properties.

3. Properties breaking 30 day periods like 30/60/90/120 have the greatest threshold points.

4. If bidding on weekends, bid on Saturday early, for HUD is open and closed on Sunday. Once they accept they never look any further.

5. Always, check off the position of back-up offer. They usually hold at least 30 days.

6. After placing an offer always review the last 2 numbers of your bid acknowledgement, this indicates how many offers were before you. Should you be -01 then reconsider your offer because you may be the only bidder.

7. In a very competitive situation, consider reducing your commission by a small amount like $50 or $100.

8. Additionally, in a very competitive situation, have the buyer pay your commission by utiliziing a "Buyer Broker Agreement" still getting 3-4% commission but the net to HUD is higher thus giving you the edge. (putting $0.00 in as your commission)

9. When reviewing Net to HUD try to round off to attain % positions like over 70% or 80%, etc. (the bottom # as a % of sales).

10. On initial periods, usually the 11th day when bids are open: 91% of net will usually win: 3% closing help, 3% your commission, and 3% asset manager commission.

11. Try to make the net to HUD always end with a 1 or 9.

12. Properties closest to 180 days on market have the lowest threshold.

13. A property that was previously under contract and has thus returned will have a lower threshold.

14. Review the current number of HUD properties that are on the site: High numbers like 500+ will have lower thresholds than counts of 200 on the market.

15. Do not keep bidding the same number when submitting, always increase by at least $500.

16. Bid after 6 PM to assure the property is still available.

17. Properties that have returned to the market due to a failed previous contract have lower thresholds. If they return a 3rd time the threshold will be even lower.

18. Never stop bidding the day you skip could be the day the AM reduces the threshold and a lower bid will overtake yours. The AM never looks back its always the number of the day. You could have offered lets say $100k net today and the threshold is $101k today, yet tomorrow the threshold could change to $97k and you skip the day and an offer of $97.5k comes in and takes it.

19. Make cash Offers on Uninsured HUD Homes. Most properties are available to all bidders are uninsured. This means that they need more than $5,000 in work – or more than 35% of the purchase price. When it comes to cheap homes, 35% is not that much, and you may be able to buy a good quality house at a bargain price.

HUD can't sell these homes with FHA loans. They know that only a few buyers will go through the hassle of applying for a 203k rehab loan. Therefore, cash offers are best. If you don’t have cash, work with a hard money or rehab lender that can give you a pre-approval letter and close quickly.

20. Respond to HUD's Counter Offers. In many cases HUD will respond with a counter offer. We suggest that you submit a reasonable, but low offer first – say 65% of asking price. If there are no other bidders, HUD will counter with a number they will accept. The counter offer HUD sends out is the NET amount they will accept, so you have to add the commissions to the net to get the total contract amount. The buyer’s agent may reduce their commission, if that is necessary to make a deal work.Once other bidders get into the game and offer more than HUD’s counter, you may be out of luck. All bidders get the same counter from HUD. You do not have to accept HUD’s counter offer. You can submit a lower bid. As these homes are on a daily bidding deadline, you can submit a new offer every day. If there are no other bidders, there’s a good chance HUD will accept a lower offer or continue to counter.

21. Be Patient and Ready. There are not too many HUD homes for investors. But great deals appear on the market every single month. There is no logic, why some homes are offered at a bargain price and others are overpriced. You just have to watch what’s happening on the HUD home store. An experienced agent will gladly do it for you.

You have to be ready and pull the trigger when the right deal comes around. Over the past year we had almost new condos offered for less than half of their retail value, we saw a duplex in German Village sell for the price of one of the units, and we found rent ready HUD homes listed for only $11K.

Bonus Tip for HUD Investors

These are the deals where you get the lowest offers accepted. Always keep in mind that HUD is a motivated seller. They make mistakes occasionally that you can profit from. But they do not give their properties away just to get rid of them.

HUD is more likely to accept lower offers on homes that fell out of contract before. Sometimes the relisting of a HUD Home triggers a price reduction as well as a change from insured with escrow to uninsured. 

User Stats

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Brett Alphin
  • Real Estate Agent
  • Los Angeles, CA
62
Votes |
53
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Brett Alphin
  • Real Estate Agent
  • Los Angeles, CA
Replied

Hi Lauren,

I would imagine the highest bidder would win during the owner occupant period. They are incentivized to sell to owner occupants. I would think you could get a much deeper discount than the 89% rule. I would start at 75% net to HUD. Good Luck!

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Lauren C.
Pro Member
  • Rental Property Investor
  • Hamilton Township, NJ
149
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211
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Lauren C.
Pro Member
  • Rental Property Investor
  • Hamilton Township, NJ
Replied

Thanks for the quick reply @Brett Alphin

  • Lauren C.
  • CV3 Financial logo
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    Greg H.
    Pro Member
    • Broker/Flipper
    • Austin, TX
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    Greg H.
    Pro Member
    • Broker/Flipper
    • Austin, TX
    ModeratorReplied

    @Lauren C

    The minimum bid that will be accepted during the owner occupant bidding period is a net to HUD of 88%. Keep in mind this is a net so all commissions and any requested closing closing are added to the net amount. Hud does not give any discount to owner occupants

    Saying that purchasing a home to live in is personal and you may only get one chance to bid. If another bidder offer is $1 more they win

    Additionally, make sure you choose an agent, title company and lender familiar with the Hud process 

  • Greg H.
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    Lauren C.
    Pro Member
    • Rental Property Investor
    • Hamilton Township, NJ
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    Lauren C.
    Pro Member
    • Rental Property Investor
    • Hamilton Township, NJ
    Replied

    Great info, thanks Greg! I'll report back after I place a bid and hear back weather it was accepted or not. 

  • Lauren C.
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    Katie Uhrina
    • Cincinnati, OH
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    Katie Uhrina
    • Cincinnati, OH
    Replied

       Brett- we are having issues winning any properties with hud. I think A) they are in hot areas, and they are going above asking price and B) we are asking above and still not winning.

    So my question is, can we do an escalator clause stating that we will $1 bid higher than the highest bid? Or what do you believe is the best way to win this auctions with houses in popular areas? I'm an investor, we pay cash etc etc. look forward to your answer!

    Katie 

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    Katie Uhrina
    • Cincinnati, OH
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    Katie Uhrina
    • Cincinnati, OH
    Replied

    In addition, to the above, obviously the 89% rule doesnt apply to this scenario, so have you been in this position before and if so how do you get the properties? Thanks:)

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    Greg H.
    Pro Member
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    Greg H.
    Pro Member
    • Broker/Flipper
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    ModeratorReplied

    HUD homes are a bidding process so no escalator clause can be used. Additionally, you will receive nonhighest or best offer opportunities

    Cash or financing does not matter at all with HuD. The other bidder nets them $1 more, they win

  • Greg H.
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    Stacie Smith
    • Investor
    • Kilgore, TX
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    Stacie Smith
    • Investor
    • Kilgore, TX
    Replied

    I am interested in a HUD property that is listed for $65,000. It didn't sell a year ago on auction.com, and it was listed by a realtor at $65,000 for three months. I confused as to why HUD believes it that this is still a marketable selling price. Any thoughts?

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    Katie Uhrina
    • Cincinnati, OH
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    Katie Uhrina
    • Cincinnati, OH
    Replied

    So in hot markets , is it wise to bid above asking price? Furthermore, what is a good rule of thumb, if any, to win the home in that type of market? We bid 15k over asking price a few weeks ago and still lost the house, what gives? 

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    Brett Alphin
    • Real Estate Agent
    • Los Angeles, CA
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    Brett Alphin
    • Real Estate Agent
    • Los Angeles, CA
    Replied

    At the time I wrote this post, HUD properties made it to all bidders. They sat there for a while too if they needed work. The 89% rule could be applied successfully. All was right with the world.

    Now, the market is just too hot. Until it cools off, I suggest you look for off market deals. HUD is just not the Costco of real estate it used to be.

    Good Luck!

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    Greg H.
    Pro Member
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    Greg H.
    Pro Member
    • Broker/Flipper
    • Austin, TX
    ModeratorReplied
    Originally posted by @Katie Uhrina:

    So in hot markets , is it wise to bid above asking price? Furthermore, what is a good rule of thumb, if any, to win the home in that type of market? We bid 15k over asking price a few weeks ago and still lost the house, what gives? 

    All of the HUD strategies deal with the daily bids and the aged inventory

    The best advice I can give you in areas with properties that are selling for over asking is to know your numbers and place your best bid based on those numbers.  Don't up your bid just to get a "win" because overpaying is not winning.  If it isnt a deal, just move on to the next property

    I have bought HUD homes for 25+ years and there have been many ebbs and flows as to finding deals

  • Greg H.
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    Lauren C.
    Pro Member
    • Rental Property Investor
    • Hamilton Township, NJ
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    Lauren C.
    Pro Member
    • Rental Property Investor
    • Hamilton Township, NJ
    Replied

    Hi All! 

    As promised, here's an update. @Brett Alphin @Greg H.

    So I placed a bid on a HUD home during the first 10 day period for owner occupants of 89.05% NET to HUD and they accepted! I did 89.05% thinking if there was another buyer with the same mindset, I'd outbid them. Could I have gotten it at a lower price? Possibly. But having the OO advantage, I didn't want to risk the property going into the extended period allowing investors the opportunity.

    Thanks again to Greg and Brett as this will be my first property. Of course, we still have to close but I'm excited about the process and looking forward to the education. 

  • Lauren C.
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    Brett Alphin
    • Real Estate Agent
    • Los Angeles, CA
    62
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    Brett Alphin
    • Real Estate Agent
    • Los Angeles, CA
    Replied

    Congratulations Lauren C. !!! You've now done more than 89% of the people who say they want to invest in real estate: You took action! I wish you lots of luck moving forward with your real estate investing ventures. Cheers!

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    Chang Pan
    • Investor
    • Richmond, VA
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    Chang Pan
    • Investor
    • Richmond, VA
    Replied

    Great information! Thanks for sharing!

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    Adam Saleh
    • Investor
    • Dearborn, MI
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    Adam Saleh
    • Investor
    • Dearborn, MI
    Replied

    great post thanks for the info.

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    Replied

    Hi everyone! 

    Your post was amazing and very helpful as my boyfriend and I are doing a lot of research into a HUD home that is for sale near us in PA! I'm hoping by commenting on this, you could give me some insight into the process as well! We are not investors. We found our perfect, single home on just about an acre that is in less than perfect condition and we are motivated! The home has been on the market for 140+ days and we are working to make the perfect offer - any tips would be very helpful!! Thank you.

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    Greg H.
    Pro Member
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    Greg H.
    Pro Member
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    • Austin, TX
    ModeratorReplied
    Originally posted by @Janine Horning:

    Hi everyone! 

    Your post was amazing and very helpful as my boyfriend and I are doing a lot of research into a HUD home that is for sale near us in PA! I'm hoping by commenting on this, you could give me some insight into the process as well! We are not investors. We found our perfect, single home on just about an acre that is in less than perfect condition and we are motivated! The home has been on the market for 140+ days and we are working to make the perfect offer - any tips would be very helpful!! Thank you.

     This purchase is personal to you .  Most in this site are investors like myself so a purchase to me is by no means personal.  So if my offer is not accepted, I just move on to the next one

    Saying that, the only offer to HUD that will be automatically accepted is 88% net to HUD of the current list price. Your agent can help you with the exact number. BE sure only to use an agent and closing company that has experience with the hud process as there are many deadlines and nuances with HUD. Bids are excepted daily Monday-Friday and if someone else offers $1 more on that day they win. Good Luck!

  • Greg H.
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    Replied

    I know this is old post. I'm trying to bid for a hub home with the 88% rule. The agent come and said hub stipulation said  property cannot be sold below appraised value. is that something new?

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    Greg H.
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    Greg H.
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    ModeratorReplied
    Originally posted by @Wai Cheng:

    I know this is old post. I'm trying to bid for a hub home with the 88% rule. The agent come and said hub stipulation said  property cannot be sold below appraised value. is that something new?

    My best guess is the property is not a HUD home but a foreclosure that was an FHA reverse mortgage it that case for the first 120 days, it must be sold for basically appraised value

  • Greg H.
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    You guessed correct,  she  show me the list of stipulations. They are "HUD Guidelines 24 CFR 206.125".  So it's take it or leave it.

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    Greg K.
    • Rental Property Investor
    • Boston, MA
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    Greg K.
    • Rental Property Investor
    • Boston, MA
    Replied

    @Greg H. Have you (or anyone else experienced in HUD Homes) noticed seasonality with HUD inventory? In Massachusetts, we're down to 9 listings right now and it's usually 15-20. All but 1 of the 9 are in the Extended period so its stale inventory. Just curious if this tends to happen every year, late summer. Thanks

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    Greg H.
    Pro Member
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    Greg H.
    Pro Member
    • Broker/Flipper
    • Austin, TX
    ModeratorReplied

    @Greg K.

    Availability does fluctuate from time to time.  This year was a rebid year for the Asset manager so there is always some lag with the transfers and such with the turnover

    One thing is for certain, HUD just is not that smart. They are in no way manipulating the system to create a lack of inventory

  • Greg H.
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    Hans M.
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    Hans M.
    • Investor
    • St. Louis, MO
    Replied
    Originally posted by @Greg H.:

    @Greg K.


    One thing is for certain, HUD just is not that smart. They are in no way manipulating the system to create a lack of inventory

    We are certainly finding this to be true, but would one expect anything more from a government-run initiative? (*high-fives Ron Swanson*)