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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!
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@shane
Submit your bid and see what happens. The worst thing you can do is to over think what the seller will do. If they take your offer great if they dont resubmit it in another week or two. Just make the offer on what your numbers tell you irregardless of what you think the seller might take. Hope this helps.
Paul
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HUD does not accept bids based on repairs needed or the existence of mold etc. It is all about days of the market and bidding activity. Even though it may be listed as insured or insured escrow, it is no guarantee of FHA financing(although it used to be). Typically properties will mold and excessive damages will go under contract a time or 2 and eventually will come back on the market after the buyer's appraiser determines it does not meet FHA standards
Currently, I am not seeing bids accepted under 86-88% following the Asset Manager change in the last 45 days or so. This is a small sample so the bid acceptance pattern may change. Lower bids used to always be countered but I am not even seeing bids in the 75% range automatically countered at this time. Keep in mind that a HUD counter is not really a counter at all but more of an invitation to re bid. You can always put in a bid
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I buy HUD homes and also a Real Estate Broker. Almost all HUD homes in Albuquerque and Rio Rancho sell for close to the asking price. The only way to find a deal is to watch the listing and jump in as soon as the price drops.
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When I stated 44%, I stated "of current listed price"
One recent one we got at that percentage was less than 25% of ORIGINAL listed price.
And we have gotten property for 34% or less of last sale price.
but imho, the percentage of current listed price is the most reliable and meaningful statistic.
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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
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Can you buy a HUD home without the help of a Real Estate Agent?
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HUD homes will always be listed, and you need an agent to help you submit a bid, as far as I know.
My $0.02...
David J Dachtera
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Given the current housing shortage, this is not surprising.
One should probably consider the feasibility of bidding within the parameters you cited, doing a minimal "lipstick on a pig" fix, and holding for rental income. General appreciation trends will be helpful, I'm sure.
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just to be clear...we're talking about bidding as investors on HUD homes that are in the "extended" period, right?
I love the numbers and quotes you guys are posting about how many you've closed, and I'm amazed at either your constitution for working on homes that must be pretty tore up, or how you've managed to get such a great deal on a home that made it past the "exclusive" period.
Is it a price range thing? More homes move into the extended period because they are in a $150-200k range versus a $50-100k range? Most owner occupants can't afford a $200k home that needs rehabbing? Is it just a market thing? Your area has more homes than buyers? I live in the Midwest and almost all of the reasonably purchasable HUD homes are gone before the end of the "first look initiative." Am I so naive believing that all these purchasers are ACTUALLY occupying the homes, or is there something I'm missing about the requirements?
Bought a couple, but they were scarce as hen's teeth!
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I just posted today on another thread... ask your agent to download listing/sales history of hud homes into a s/sheet and go from there to analyze HUD pricing and acceptance behavior in your particular market.
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Originally posted by @Lyuba Barrington:
I just posted today on another thread... ask your agent to download listing/sales history of hud homes into a s/sheet and go from there to analyze HUD pricing and acceptance behavior in your particular market.
I have done this for the better part of 20years. MLS access is not needed and in many cases the sold data will not produce an accurate net to HUD. You can use Realtor.com, Trulia, Zillow to obtain the list price and HUDhomestore.com to obtain the net to HUD for the most accurate information
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Originally posted by @Gordon Vaughn:
I don't know of any way to get around the owner occ period if you're buying as an investment. If you take a chance, sign the OO certificate and it's found out that you fraudulently acknowledged you're an OO, I think the fine is up to $100,000 and 1 year in prison(??). There are certain circumstances whereby you'd be allowed to sell within the period, (ie: Your company relocates you ). Do your research on the rules governing this policy.
I assume the OO rules have changed a few times since I personally bought a HUD home as owner occupant... from what I recall the HUD discussion of OO certification was revolving around INTENTION to occupy. If one bids on the house, lives there couple months and ends up being married and living elsewhere - this was not a violation of the HUD rules back in 2004! Any good reason would do as long as it did not look pre-meditated... Can anyone confirm that or not, as to current regulations?
The extension of this discussion would be the situation when OO-buyer wins the property during exclusive period of 2 weeks. Very often the extent of repairs will force this buyer to drop the contract due the problems with financing, and it goes back on the market. HUD will first try to offer it to OOs who lost initial bids (at that time it will be past 4 weeks after the initial bid acceptance)... so.. if every OO with prior lower offer refuses to buy, would the house go back to exclusive period or straight to extended period? What about price reductions at week #6 and back on the market status in MLS? One of the "devilish" investors I once worked with actually devised 2-step bidding strategy involving 1st win by OO, then deliberate release BOM with loss of escrow deposit, at which time it would fall right into the lap of the investor who would submit a bid the NIGHT BEFORE status in MLS changes to BOM. I think he'd said that his bid got submitted directly to asset manager via their agent (since official bidding is still closed in HUD store). Curious if anyone can comment on this situation.... :) Oh.. forgot to mention that the exclusive listing prices were already a good deal in my market, so OO would have to bid higher than listing price in order to win. Any comments?
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HUD in most regions went to a single Asset Manager in most regions a few months ago. The bidding systems have changed a few times since 2004 but non of the "tricks " are currently working in my region. Price reductions are not following a schedule and it appears no manual bids are being processed.
You are correct about the owner occupant intent. You must occupy for 12 months but unforeseen circumstances such as job transfers and such can reduce the period
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I'm located in west Texas, and recently won a bid on a HUD. The listing price was 60,000. My real estate agent suggested if I really wanted the deal to put in the asking amount and if I was on the line offer 50,000. I put in a bid for 48,000 and didn't win. Fast forward to a month later the bid reopens for 24 hours, and HUD stated that they wanted to net 52800. So I made a bid for 57000 and closing and won so not much different from 60000. This was my first HUD experience so thanks for the information.
Just purchased a HUD home in Houston and the formula I used was 91% net to HUD. It worked. I might have gone a little less (88%?), but the home was already a steal. Beyond this forum, if you google 'winning HUD auctions' you will find many, many articles from investors who have successfully bid/won HUD homes and their formulas.
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I agree with the guy who uses percentage of offer price as opposed to percentage of net price to hud. The hud site just tells us what the property is being offered for, so our starting point is to figure out how much hud will back down off there offer price. we dont need to know how much they will net . Hud will figure that out them selves.
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Originally posted by @Alsee Mccray:
I agree with the guy who uses percentage of offer price as opposed to percentage of net price to hud. The hud site just tells us what the property is being offered for, so our starting point is to figure out how much hud will back down off there offer price. we dont need to know how much they will net . Hud will figure that out them selves.
That is not correct. The ONLY number consider by HUD is the net bid amount. If you look in the bid results section of HUdhomestore.com which lists the winning bidders, the only number given is the net to HUD. Additionally, the net is listed at the bottom of the bid when placed. Nothing needed to figure out
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@Greg H. is correct that HUD only cares about the Net. I used to buy a couple of homes from HUD each year and they produced some of my best deals ever. The 87% number was always the minimum net that they would accept for properties that entered the Extended phase and had not yet been reduced. I actually wrote my own Excel Macros to download the data daily and record the net price versus offer and original list price and further broke down this data based on DOM. As HUD has been making changes to the bidding process over the last several years, I have stopped buying altogether. There are just not any deals to be had in my areas anymore and people are paying ridiculous prices to win the bids.
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Yes Greg I see that HUD is mainly concern about what they will net, I just made a bid on a hud property. They were asking $125000 this property has been on the market for almost 90 days. So I figured I would offer 70% 87500 for the property. But that was only going to net Hud roughly $82,250 If 82,250 is an acceptable net for hud then the 70% formular off the offer price after 90 days works. This is the point I'm trying to make As far as the math is concern it doesn't matter if one choose to work from the offer price to come up with a system, as long as that system gets hud what they want to net. Now if we know that hud will accept a net of 66% of the offer price. 82,250/125000 then we can offer $87500 which is 70% of 125000. The point I'm making is it doesn't matter weather you choose the offer price to work from because their net price will always be a percentage of the offer price.
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On second thought I am wrong. The best way to even begin to figureing out how much to offer is to consider Hud's net first. If they have a house listed for $100,000 and its been on the market for 30 days and you think they will let it go for 88 percent then first firgure out what there net is , if they are only paying out a 6% commission then there net is 94000. if they want their net to be 88% of the asking price then they must net 88,000. we cant offer 88,000 because there net has to be 88000 . in this secerio if we offer 88k then we are 5280 dollars too short so our offer has to be 93280
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I appreciate your insight Alsee - The thing is, HUD doesn't typically pay out 6% total commissions because they work out volume contracts with their listing agents at 1-2%. If you look at the commission section of your settlement statements on HUD transactions you'll see that they're mostly less on the listing side than the selling side, and in most cases roughly half of what the selling agent is making. If the listing agent makes a full 3% commission there's a kickback involved between HUD, asset manager, and list agent. HUD is a govt institution thus, corrupt, and the net profits get shuffled around in elaborate bureaucratic systems. I'm not a conspiracy theorist - I've seen it play out with my own eyes. I don't want to incriminate anyone, but I used to be the sales manager for the largest REO company in Atlanta, located in Stan Butler's home city of Roswell, Ga (hint), and I'm sure Stan Butler has used them many times b/c they're still the largest HUD home listing agent in Georgia. I used to see the frustration from the asset managers on this subject constantly. Although there is obviously a direct correlation between offer price and net price which keeps both %'s fairly consistent with each other, this topic of offer vs net has been a major disagreement between me and Greg H since this chain began. Bottom line is that you'll never know what HUD's acceptable net offer will be until they tell you, and that won't happen until you place your offer. There will be those who will never agree with me on this subject and I'm sure the squabble over the 2% differential between the 2 strategies will continue. But I know a few things about the process that others don't - the things that are never displayed nor calculable for the public. Regardless of your strategies for acquisition, all strategies seek to devise an offer price and HUD homes are no different. A buyer cannot control seller's net requirements, and a seller can control what they want the public to see. Continue to focus on your offer % when placing an offer on a HUD home, then let the response to your offer guide your next move.
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@Shane H. - they usually won't accept bids that low. The thing to remember with HUD's bidding system is that it is completely automated. They usually won't accept offers that low but it certainly won't hurt you to place the bid.
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Many years ago, at least 8 or so, that was the case that listing broker's did not receive the full 3% listing commission. Today actually whether they do or not reduce/kickback commissions is immaterial to the bidder. The locked in listing commission to the listing agent is 3% or $1000 whichever is greater. This cannot be altered in any way and is reflected in the online bid therefore becoming part of the net. This number is also reflected on the settlement statement at closing as well. So if you are correct that kickbacks are still happening, this is a clear violation of RESPA for not disclosing such.
Months ago, I did read your posts again and kind of figure out where you were coming up with your number but your formula has not been accurate for several years. The formula has changed at least 4 times that I can think of in my 25 years of bidding and since Sage took over a few months ago the system has make the biggest changed and not for the best for the investor.
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Since this thread is now 7+ months old, I just wanted to update this thread with current trends. I have personally bought 300+ along with being the broker on scores more over the years. Until 5 months ago, I cannot remember a month that I did not purchase at least one HUD property. In the last few months, I have closed on 2 and only received 4 winning bids. I track a large sampling of winning bids each week and have spent countless hours to see if there is a new formula but frankly there is no current pattern that I can detect. I only buy in Texas but I have done a very small sampling in other states as well. Here is what I see currently:
-Sage Acquisitions has taken over as the sole asset manager. There used to be 3 and they varied slightly by region. Sage is for the most part the old Hud Pemco. As others have said, Sage has been very difficult and slow to deal with. Maybe a volume issue ?
- I have not been able to verify a bid in Texas that has been accepted below the 87-88% of the CURRENT listing price. I will say that since I am not a member of all the MLS systems in Texas(There are 25+) , I do have to rely on outside services such as Realtor.com and Zillow for the listing price. Some of the bids appeared to be below the 87-88% but under further investigation appeared to be a delay in the listing agent posting the price reduction in the MLS
-Here is what an acceptable bid on $100000 looks like
$100000 Bid
-$3000 Closing costs
-$3000 Selling agent
-$3000 Listing agent
NET TO HUD WOULD BE $91000 OR 91%
So there would be $3-4k to play with in this bid so the minimum acceptable bid would be $96-97000. Obviously the commission and allowable closing costs are reduced slightly to reflect 3% of the bid price
-Price reductions in the past used to occur right around every +-30 days and were usually 10%. This is not the case currently. I have seen a property reduced approx 25% in the first 30 days and some with no reductions in 90+ days.
-In the past, properties on the market over 120 days would have had at least 3 price reductions and HUD would usually accept a net of 60-70% net of the current list price at that point. These properties where the ones I target most often. Today, I am not seeing bids accepted below the 87-88% of current list price even after multiple price reductions. Keep in mind , this could still be upwards of 50% off the original listing price. Finally, in the last 2 months it appears HUD is auctioning off some of their aged inventory via Hudson and Marshall. I am not sure if this is a test of something that will become permanent