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Updated almost 5 years ago, 02/14/2020
Successful HUD Bidding Strategies
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!
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.
Wow! Thanks for all the tips! I'm printing this out to keep next to my computer for a quick reference.
There are a few of us on here that purchase several HUD homes a month. About 90% of my inventory comes from HUD and I have to be approaching 300 or so. Strategies for purchasing HUD homes change often and we are now in the area of their are no absolutes. Spending several hours per week tracking sales and tweaking my strategy, I will share some basics and comment on a few bullets from the OP. Some things I am just not going to share as this is my career and I have put 20+ years into it. Hmmmm....Maybe I will start a guru class and I can guarantee you for the $20,000 some of them charge I will spill all my strategies !
-89% may be 1-2% high in some areas
-If you are going to buy several become an agent as I can by the property for 3% less than you every time and on the low dollar properties they offer a flat $1250 commission. On a $15000 home, I can buy for $1250 less than you
- If you are getting financing, the ability to/or not to be able to turn on utilities causes may deals not to close. Advise you lender if HUD will not let you turn on the utilities for the appraiser to see if there is a work around. If you are going FHA there is no work around
-Some of these rules don't apply if it is personal. If you are buying to live in and this is THE house, don't overbid but understand that you don't want to lose it for $1000. For me it is never personal, if I get it great if not there is always 5 more. I buy anywhere in the state of Texas
- A HUD counter is not really a counter at all. Look at it as an invitation to rebid. Even if you bid the amount of the counter it is not considered until the next day and you can be outbid
-Some of the internet info is outdated of incorrect and I will address it by number
-Financing or Cash matters ZERO to HUD. The highest net to HUD wins
-You cant offer higher earnest money, 10 day closing or in anyway change their contract to make your offer stand out
4. Bidding Fri-Sun or Holiday doesn't matter anymore as all bids during that period are opened on Monday. So whether you bid a 9am Friday morning or 11pm Sunday night it is all the same
6. You can no longer track the number of bids
18 and 20 No need to bid everyday . Eventually your bid might be submitted to HUD by the asset manager to HUD for consideration
OP- I wasn't trying to steal hijack your thread. If you want me to move it to another let me know
Thank you very much for the info Greg H. All input is much appreciated.
The 89% rule will get you accepted, but is it a deal?...usually not.
50% of original listing price is usually a good deal.
I agree with most of those as well.
Could either of you clarify one fact, does the bid need to come form a qualified broker or can I obtain a Real Estate Salesperson license and place bids to "save" the 3%?
Originally posted by @Jeff Robert:
Could either of you clarify one fact, does the bid need to come form a qualified broker or can I obtain a Real Estate Salesperson license and place bids to "save" the 3%?
Hi Jeff,
If you got your license, you'd have to work under a broker in most states for at least 2 years anyway. So, It would depend on the agreement you'd have with the broker who's office you hang your license in. If you just pay desk fees, then sure, you'd save the 3%. I appreciate having an agent though. The 3% is calculated into my analysis of each deal. To each his own, but I look at it as the cost of doing business.
Hope this answers your question and if anyone else has input, please feel free to add.
@Brett Alphin , @Greg H. , @Dennis Pressey Jr This is great information! I am a Lic. Broker in New York and just applied for a NAID number. If you are looking to do some HUD deals in New York let's partner up and do some deals. Thanks!
I'm a salesperson in California. I'm under a broker. Should I use his NAID number or can I partner with a different broker just to purchase HUD homes?
@SherriePickens
From: http://www.hudhomestore.com/Listing/NaidApplicatio...
For Associate Brokers and Sales Agents: once your Principal Broker has registered, you can register on HUDHomestore using your Principal Broker's NAID and your own real estate license number. Once registered, you can use your Principal Broker's NAID and your own real estate license number to submit bids. The HUDHomestore Bidder registration link is found in top right corner of the HUDHomestore site.
Good Luck @SherriePickens
Just tested this on a HUD counter offer and it sat at 88% so good information indeed!
If you want your bids held as back-up offers, does this mean that the bid continues to be carried through every day until cancelled or changed?
You may not receive the generic counter from HUD everyday but at some point your offer could be accepted. No downside to doing it
I can't seem to find a HUD broker to submit bids for me. There is a comprehensive list on hudhomestore.com and not one person has answered back. What am I doing wrong? There is a property I'd like to submit a bid on 1/23/2017.
Feel free to reach out. I am a broker and have done hundreds of HUD deals
Thanks for this post. When you are calculating the 3% for your realtor, and 3% for the listing agent, is that the only consideration you give for seller paid closing costs? I know there is a separate line asking them to cover a specific dollar amount when putting in a bid. So, would you add anything to the 6% there?
Hi @GregPilz
I have never added anything other than the 6% for realtors' commissions. I have, on some occasions, had my agent add only 3% to the commission line. Then I paid my him out of pocket at an agreed upon percentage of the purchase price (sometimes 2-2.5%). I will mention that HUD has become a lot tougher than it was when I originally posted this. Homes rarely make it to "all bidders" now, and when they do the amount they will accept is much less of a discount than it used to be. Good Luck!
The 3% for the listing agent(or $1000 fixed for lower dollar properties) cannot be changed. The selling agent can place any amount up to 3%(or the $1000) so that field can be changed. Being a Broker, I always put the selling agent fee as $0 when I am the purchaser. The field for allowable closing costs can be anywhere from $0 up to 3%
Keep in mind on a HUD property, the highest net to HUD wins and cash vs financing is not a factor at all. If my net is $1 higher I win
Brett do you feel the 89% rule still stands with HUD these days? Looking at a property that just opened up to Extended today. Want to bid, but also want to save a few dollars here and there if possible. Price is about $100 sq foot when other homes in the area are going for $110 to $117. Needs about $10,000 in updates/repairs/appliances. My agent seems to think $95 to $100/foot would be good.
Thoughts?
if the property just opened up to investors, 88% net to Hud is the minimum that will get accepted at this time. Any bid below that will trigger a generic counter which is more of an invitation to re bid.
Hi @JenniferMacDonald
Greg is right. Make sure you always check the box to allow them to hold your offer as a backup too. We have gotten a few good properties that way. They reject our offer at first. But when the highest bidder walks away for whatever reason, they go back to the backup offers. Usually at a really nice discount too. Good Luck!
I am a HUD broker in Pennsylvania and I always tell investors that aged inventory is their best bet on getting a great deal. Of course you need to place the bid to win. Also, every once in a while they appraise a house WAY TOO LOW which creates some chaos, but if the house is in real poor condition, most owner occupants won't want to touch it which gives investors a chance
@Brett Alphin: I'm about to use the 89% rule tomorrow. Wish me luck and I'll tell you how it goes!
Good Luck @AsimAlam !!
If I am looking at a hud home that was just reduced to 157,000 and has just been opened to investors, how much should I bid?
Hi Brett, Thanks for all of the info! Question for you and anyone else who may know. Does the 89% rule apply to owner occupant homes as well? Looking at a duplex HUD that is still in the exclusive period and I'd occupy one of the units. Does this open it up to a lower threshold or does 89% still apply?
Thanks!