The Best Kept Secret For Bidding On HUD Homes

[Gordon Vaughn]

I have bid & won more HUD homes for my investors than I can count, and I use a strategy that I have been hoarding all to myself for several years. A few of you may already have an inside track and are familiar with this strategy, but for most of you it's just not fair to keep it a secret any longer!!!

HUD uses 3 companies to manage the disposition of their homes; Pemco, Ofori, and Hometelos. Because these companies work on behalf of the govt, they're not allowed to think for themselves (no offense to the govt workers out there- but so true) and have very strict guidelines for considering and accepting bids. These guidelines are put into strict templates that dictate which bids managers can accept, and at what price points are acceptable. All asset managers for REO's are limited by similar guidelines. But thanks to a dear friend of mine who works as a senior asset manager for one of the above HUD asset companies, knowing this HUD template has been perhaps my best tool in gaining leverage to winning more bids at the lowest prices possible!! Here's the secret:

- For new listings and open listings that have not seen a price reduction, HUD will accept the highest offer in a single bidding period that equals 90% of the list price or higher. If you bid at least 90% of the list price and you're the highest bidder, the house is yours - period!

- For listings that have been reduced 1 time in price, Hud will reduce the price by                   exactly 10% of the list price and accept the highest offer in a single bidding period that   equals 85% of the list price or higher. That's 85% of the reduced list price! If you're the   highest and over 85% of the reduced list price, the house is yours!

- For listings that have been reduced a 2nd time, HUD will reduce the price by exactly 15% of the current reduced list price and accept the highest offer in a single bidding period         that equals 70% or higher of the 2nd reduced and current list price. At least 70% and         high bid & the house is yours!!!

- If the home still isn't under contract by the end of this bidding period, they'll consider     negotiating with the highest offer or wait until there's an offer worthy of their consideration.   Usually homes are under contract by the 2nd price reduction.

Knowing this trick has been extremely valuable to me and my investors in 3 ways: (1) It has saved valuable time from submitting low ball offers that could never be considered. (2) It has provided leverage for many accepted deals that have been just a tiny bit overpriced, closely competed for, but all the other bids barely missed the percentage mark. (3) When the bidding period changes to a daily bid, I submit a bid as quickly as I can and if possible on the same day that the bidding period becomes a daily period. During this period bids are reviewed and considered on a daily basis. I can submit the lowest price HUD will consider, on the same day status changes. If no other offers come in within a 24 hour period from my bid, the chances of an acceptance of that offer are very high!     

HUD used to advertise the appraised value in their listings, which always matched the original list price. When reductions occurred this appraised value would remain the same, which was a great gauge in determining how many reductions the listing has had. Now you have to monitor & keep a record of original list prices, unless someone in BP land has the answer for that! I hope everyone that likes bidding on HUD homes finds this knowledge to be very useful!

[Greg H.]

A quick search on BP would show the your secrets to be off a tad bit. There are a couple of HUD listing brokers on this site as well as several people like me that have purchase several hundred HUD homes over the years.

While there are 3 Asset management groups per region they differ by region.  For example , in the southwest region we have Hometelos, Matt Martin and Pemco

The universal number based on people from around the country seems to be 87-88% as opposed to the 90% you indicated for new and extended listings that have not been reduced

The timetable and amount of price reductions seem to vary slightly by region as well. 

I will say that each asset management group as well as each asset manager with the group tends to operate slightly different so there is some latitude with what bids are considered after 60+ days on the market.  I do have a good idea what bids will be accepted on the aged inventory.

HUD does not negotiate in any way and any counters you receive are generic and as discussed here often are not counters at all but an invitation to re bid

Even if you do not have MLS access you can easily track the price reductions via sites like Realtor.com

As always, I will be happy to help anyone with the process if I can