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The Best Kept Secret For Bidding On HUD Homes
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!
@Tim Debronsky I am looking for something in Firestone park. I have a friend/contractor that needs a home to rent and will eventually buy from me. He wants to be in that area.
Lol..awesome!! The funny thing is that everyone is right! @JimKent - I know for a fact that the broker I used to work for currently has direct managerial access to HUD bids. But this broker is among the top 3 REO listing brokers in the southeast U.S. and he negotiates his listing contracts from a position of great strength. He's the best in the business & the Atlanta market has been among the top 5 most active default markets in the U.S. for 2 decades, so he can demand whatever access he wishes. Now, if he has direct access to bids I personally have to assume that other brokers do as well. Just common sense in my opinion. Everything is negotiable.
With that said, HUD is a government institution, and like most govt institutions their procedures are very strict & penalties are extremely stiff. The chances of "insider trading" with HUD home opportunities is highly unlikely as Greg H & Mark G expressed. However, preferential treatment and favoritism happens all of the time with bank and lender owned properties. And I actually agree with Mark Gallagher on this point: "You should consider getting on the inside". What I mean by that is, you need to establish good relationships with the listing agents that list REO's and distressed discounted properties. You can do a few ways: Follow these brokers on Facebook and find out if they're holding seminars or classes on REO purchasing and attend these classes - get to know them. If they organize luncheons attend them and establish a rapport. But the best way to get them to make recommendations and/or put you in a position to lead the pack is to successfully close a deal or 2 with them without issues or setbacks. Gain trust by following through on a deal or 2 without complications, and NEVER back out of a deal once you put it under contract. Once you pull out of a deal after you get it under contract the chances are that they'll remember your name on future offers and you wont stand a chance on picking up another through that broker. Do your due diligence and inspect properties before you submit the offer. Once you earn their trust you've earned a higher priority position when placing offers. This is how you can become the insider.
@Ronda R. My investor friend has 5 properties in Firestone Park he is selling. Purchase prices range from $36,500-$46,500. These properties are currently renovated and rented. Let me know if you have any interest and I can get you more details.
edit/removed
Thanks to Gordon for his HUD info. And, thanks to Greg H. for his HUD info also. Both of you are helping BP members.
I have learned from both of you.
Thank you for your kind words James. I'm glad this info has been useful to you.
I appreciate the info you have posted here on buying HUD homes. But, they are still priced way too high. How do you deal with that?
As an example, we looked at a HUD home today that was $102k. It is in a decent neighborhood and I wanted to buy it for 90% until I looked at it. It was not maintained, and would require about $30k to get it into good shape. (roof, well, tree roots raising the A/C unit at a 20 degree angle, soft, uneven floors under carpet, etc.) Every HUD home I look at is in poor condition. I told the Realtor that I would pay $65k for it and she said they would not accept that. So, how can we buy HUD homes and still make some money? The HUD administration people never see the houses and don't seem to understand that the prices are too high.
Very few HUD homes meet my criteria as well. Out of +-250 homes available at any given time in Texas, I usually have interest in a handful. So if you are looking only at homes in a particular area, I would count on less than 10% meeting your criteria.
As far as pricing, HUD does not factor in the "investor price" when they set the initial value . They are looking for 100% of market value. If every property was priced at the rock bottom number right off the bat, investors would never have a chance since owner occupants get the first crack. Just be diligent at looking for price drops and put in an offer at your number. At some point, the property may fall to your number
What an awesome thread! Took me a while to read through it all. This will be a big help for me when I start bidding on HUD properties in the near future. The G's, Greg and Gordon..you guys have a wealth of knowledge. Thanks for the good info and glad you were able to make peace. Haha.
Great thread gentlemen, thank you all.
I will be submitting a bid tomorrow to my realtor for a HUD condo listing for 137K, 90% puts it at 123300 so I was thinking of making it an even 125K. I have to tell my realtor first thing tomorrow morning so I'm not sure if one of you experts will read this on time but if so I would love your thoughts on it.
I'm a first time buyer, and I'm getting it as an O/O
Originally posted by @Julian Sanchez:
Great thread gentlemen, thank you all.
I will be submitting a bid tomorrow to my realtor for a HUD condo listing for 137K, 90% puts it at 123300 so I was thinking of making it an even 125K. I have to tell my realtor first thing tomorrow morning so I'm not sure if one of you experts will read this on time but if so I would love your thoughts on it.
I'm a first time buyer, and I'm getting it as an O/O
My response is based on the assumption that the property is new to the market and has not had any price reductions:
HUD only considers the net bid including any commissions and closing costs requested
The minimum net HUD will automatically accept at this time would be $120,560. So your minimum bid is you are asking HUD to pay 3% closing costs would be roughly $132890. If you are not asking for any closing costs it would be roughly $128780
Keep in mind. if another bidder nets HUD $1 more they win. There are no highest and best or any other negotiations. Good Luck !
Thank you very much Greg!
Yes, it is new to the market.
I am pending answer from my realtor since she has not sent the bid yet.
I'll raise to 129 then no closing costs.
Just a note: I'm in the south Florida market very little HUD properties down here
Great thread. Thought I would some interesting scenarios for HUD properties I have seen recently. Property 1: on the market 7+ months, and 4 price reductions. Just took a fifth price reduction at 30% of the current list price.
Property 2: on the market 10+ months, 3 price reductions (1 deal fallen thru). Just took a fourth price reduction at 40% of the current list price.
A few months ago HUD took 3 properties that had been on the market for a while and reduced them 25% of the current list price. Bid on one of those 25% reduction houses and got the 87% counter from HUD. Deal didn't make sense, and someone else bought it at the HUD 87% counter.
Just thought it was interesting that they have slashed prices on a few of these homes. Obviously trying to unload these properties and generate interest at a lower list price. Anyone else seen these drastic techniques in your area?
Originally posted by @Adam Mills:
Great thread. Thought I would some interesting scenarios for HUD properties I have seen recently. Property 1: on the market 7+ months, and 4 price reductions. Just took a fifth price reduction at 30% of the current list price.
Property 2: on the market 10+ months, 3 price reductions (1 deal fallen thru). Just took a fourth price reduction at 40% of the current list price.
A few months ago HUD took 3 properties that had been on the market for a while and reduced them 25% of the current list price. Bid on one of those 25% reduction houses and got the 87% counter from HUD. Deal didn't make sense, and someone else bought it at the HUD 87% counter.
Just thought it was interesting that they have slashed prices on a few of these homes. Obviously trying to unload these properties and generate interest at a lower list price. Anyone else seen these drastic techniques in your area?
Interesting information. My guess is there are very few areas of the country that are seeing 6+ months on the market. I wish I had more opportunities for them !! Hud has tried to auction some of their aged inventory via Hudson and Marshall in the last few months as well
Originally posted by @Greg H.:
Originally posted by @Adam Mills:Great thread. Thought I would some interesting scenarios for HUD properties I have seen recently. Property 1: on the market 7+ months, and 4 price reductions. Just took a fifth price reduction at 30% of the current list price.
Property 2: on the market 10+ months, 3 price reductions (1 deal fallen thru). Just took a fourth price reduction at 40% of the current list price.
A few months ago HUD took 3 properties that had been on the market for a while and reduced them 25% of the current list price. Bid on one of those 25% reduction houses and got the 87% counter from HUD. Deal didn't make sense, and someone else bought it at the HUD 87% counter.
Just thought it was interesting that they have slashed prices on a few of these homes. Obviously trying to unload these properties and generate interest at a lower list price. Anyone else seen these drastic techniques in your area?
Interesting information. My guess is there are very few areas of the country that are seeing 6+ months on the market. I wish I had more opportunities for them !! Hud has tried to auction some of their aged inventory via Hudson and Marshall in the last few months as well
I have actually seen a couple assets that got sent to Auction.com as well. They took 4 aged inventory houses about 2 months ago that did not sell on Homestore and I believe they all sold on the first run thru Auction.com
As far as your bidding strategy goes, I have seen results consistent to what you have indicated. The only thing I would say is with price changes, it appears they give themselves a window (3-5 days) right after the price change where the threshold is a strict 87%, no matter if its the first, second, third or beyond price change. After that, then they consider the less than 87%. Also, the effect of having a deal fallen thru impacts the threshold pretty significantly it appears.
A few recent examples I have seen in different areas with # of price reductions and accepted net to HUD % (of the current list price):
0 reductions: 95.4%, 99.1%, 89.6%, 93.1%, 85.3%, 75.6%, 89.4%, 91.3%, 91.3%, 91.0%, 91.0%, 83.2%, 93.4%,
1 reduction: 87.04%, 87.02%, 74.6%, 72.7%, 70.3%
1 reduction (1+ deal fallen thru): 65.3%, 72.04%, 72.35%, 50.1%, 70.8%
2 reductions: 61.7%, 59.1%, 80.1%, 71.2%
3 reductions: 75.0%, 69.7%, 67.3%, 60.0%, 58.0%, 60.1%
Following...
i am a new agent and signed up on hud. Am i able to place a bid on a house i am buying as an investor? My broker believes that i would not be able to receive commission on a house i am buying as investment. Any help is appreciated.
Does your broker have an NAID #? They will need one in order for you place a bid
The far better strategy is to forfeit your commission by putting zero in the selling agent commission field as:
- You don't have to split any commission with your broker
-You don't have to pay income tax on your split
- You can win a bid with a 3% plus $1 from a regular buyer. For example, since HUD only considers the highest net, by forfeiting my 3% , my bid of $97001 beat another bid of $100000 with an agent collecting 3%(Simplified)
Thanks for the response. I do think your idea makes sense. The broker does have NAID# and we can call in offers. I guess i am trying to figure out if there is anything that prohibits me from calling it in and leaving the commission. I need some sales transactions and my broker could make a little money.
Finally, Hud will be entering the 21st century by utilizing digital signatures as of May 1st !! With all the reams of paper I have used along with the $1000s in overnight fees, I could have easily bought another property or 2
Originally posted by @Greg H.:
So it has been 2 months or so since the new Asset Managers have taken over in the Denver and Atlanta Regions and things have changed significantly during this time. Although 2 months is a small sampling, I have noticed the following changes :
- Based on the bid results I observed, no bids are being accepted below the 87-88% threshold regardless of days on the market. Previously , Hud's aged inventory would manually review and accept bids significantly below this threshold
-Price drops are not following any specific pattern based on days on market. Previously price reductions of 10% were expected every 30 days. Currently, there are some properties being dropped 25% within 45 days while some have no price drop in 60+ plus days
-Many bids are not being countered. Previously most bids over 50% of so net to HUD would be countered with the 87-88% net to HUD. I have had bids in the 80% range not even receive a counter
Obviously, these are not changes in favor of the investor. Personally, I have gone from 2-3 purchases a month to 1 in 60+ days
What are some of the rest of y'all seeing ? Please only reference bids in the last 60 days or so
So when you say net to HUD if a HUD property is listed at 150k and I offer 87% net to HUD my offer would be 130,500 and that would more likely to be accepted? Am I understanding this correctly?
And do all brokers have to have NAID to submit bids on HUD homes? My realtor has managed to talk me out of 2 HUD homes. But my fault because I didnt research and understand the process. Thank you for this thread!
Originally posted by @Noelle Yarn:
And do all brokers have to have NAID to submit bids on HUD homes? My realtor has managed to talk me out of 2 HUD homes. But my fault because I didnt research and understand the process. Thank you for this thread!
No, not all brokers have a number. They have to apply for one. If yours does not, I'd find another broker.
"Finally, Hud will be entering the 21st century by utilizing digital signatures as of May 1st !! With all the reams of paper I have used along with the $1000s in overnight fees, I could have easily bought another property or 2"
Seriously? I think this may be the best news I have heard in awhile. The closest place to me that sends overnight closes at 5:00 and the next closest is 30 minutes away (Still closes by 7:00) and of course buyers not getting home till 6:00 makes for a 48 hour turn around a bit of a pain. That will solve so much!
Thanks for the info @Greg H.!
any ideas on what we should be bidding in rural west coast?...house need some about 3-5k in reno and has been sitting for 3-4?years now maybe..