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!

[Amy H.]

I agree with @Greg H. with the 88% rule. I used to be an HUD Account Manager for a broker in VA. I would calculate percentages after HUD accepted a deal. It usually fell between 88-89% for my area. Thanks Greg for all that great information!

[Elbert D.]

Or you could have a close relationship with a realtor who knows what it takes to win. lol ^__^

[Kevin Powell]

@Greg H. thanks for all the info on this thread.   I started reading on page one and then skipped to page 9.  Much good info here.

I am looking at a property that was listed in March 2017 for 54,900 and then price dropped in April to 49,900.  Now it says in August it is Listed again but at a lower price of 43,900.  

A couple of questions.  

1. For automatic acceptance should I bid 88% net to Hud of the $43,900 or 

2. Do you bid less than 88% since the price has been reduced.  I am really interested in your response on how the 88% applies after a drop in price even if it doesn't apply here.  See Question 3.

3. Or should I treat this as a new listing since the Event now says Listed instead of Price Changed and just bid 88% net to Hud.

Thanks in advance for your input.

[Greg H.]

Originally posted by @Kevin Powell:

@Greg H. thanks for all the info on this thread.   I started reading on page one and then skipped to page 9.  Much good info here.

I am looking at a property that was listed in March 2017 for 54,900 and then price dropped in April to 49,900.  Now it says in August it is Listed again but at a lower price of 43,900.  

A couple of questions.  

1. For automatic acceptance should I bid 88% net to Hud of the $43,900 or 

2. Do you bid less than 88% since the price has been reduced.  I am really interested in your response on how the 88% applies after a drop in price even if it doesn't apply here.  See Question 3.

3. Or should I treat this as a new listing since the Event now says Listed instead of Price Changed and just bid 88% net to Hud.

Thanks in advance for your input.

 No matter how long it has been on the market, 87-88% is the only number that will be automatically accepted. With the days on market, you have a great chance of a lower number being accepted.  Keep in mind it may be days or even weeks before that happens.  

Properties are never personal to me,, so I would throw out a lower number

[Michael Plante]

Originally posted by @Greg H.:

Originally posted by @Christopher B.:

How are you guys finding cash buyers for HUD homes?

While I do wholesale some of the HUD homes that I purchase, I purchase with cash so I do not necessarily have to have a cash buyer lined up for a double close

IMO you are going to have to be able to show value to your cash buying investors. Everyone is going to be able to goggle the address as see what HUD had the property listed for and with a little investigation can find out approximately how much you bid for the property(Prior to closing) For example, a property is on the market for $100,000 and you get it under contract for $80000 or so you could illustrate value by wholesaling it for $90000 and an investor might perceive that as a value

Very interesting to me. Only HUD home I ever bought was via auction for ny wife and I to live in Polk County FL

Would you mind going into a little more detail about how  you went about purchasing 400 homes for cash please

 Things that would help as other people see what might be available on our areas 

[Kevin Powell]

@Greg H.thanks for the feed back and the distinction between and automatic acceptance and the possibility of an acceptance - that is what I was missing.  

[Greg H.]

@Michael Plante

I have been at this for a long time.  No guru courses or seminars.  I figured it out by trial and error with an emphasis on minimizing the errors !!

When i started buying HUDs,  you revived a paper in the mail each week with a one line description of the property which was inaccurate a high percentage of the time.  I had to call a recording to get the results.  You might have to listen through a 100+ results until they got to the property I bid on. 

Buying HUD homes was just a better fit for me than contacting individual sellers. Less personal I guess. My personality is that I always want to fall for every sellers story and would want to pay/do more. Using that route, I would have found a new profession long ago

The HUD bid system is impersonal albeit a bit less than it used to be.

Back in the day, I bought one at a time and worked like hell until it sold.  Eventually, I was able to buy 2 at a time, then 3 etc etc.  No real magic there

I track solds looking for patterns in the bid acceptance policies.  The patterns have changed dozens of times over the years, hence my disagreement with the OP in this thread

For years, there was an exact pattern for bid acceptance.  Now, except for the automatic acceptance number there is not

HUD should hire me to run their marketing as there are many flaws in their system that they dictate. I just try to take advantage of them

For example, I had a bid excepted today which originally was listed at 84000. The property has been on the market for 120+ days with several price reductions and had sold in 2011 for $82000. My bid was accepted at $35005. Why? The agent was not a member of the MLS in the area the property was located. So while the property was listed in the MLS, it was listed in the wrong MLS so the local agents had no idea the property was listed.

[Adam Mills]

@Greg H.

Interestingly enough, since we changed Asset Managers, we have had zero price reductions, on any of the HUD houses in my area. At least any that I have been able to track, and I watch pretty closely.

I know they were starting the transition June 1 with a full transition by August.  Possibly they are waiting 30-45 days after full transition before they begin entertaining price reductions.  

Have you seen any of this in your area?

[Greg H.]

@Adam Mills

Are you saying that no price reductions have happened since June or August?  There is usually a lag and/or a change in policy with a new Asset Manager.  90 days seems excessive but 30 does not

Track some in your HUDhomestore account and the list date next to the price will tell you the last price change on most listings

[Adam Mills]

@Greg H.

Zero price reductions across a tri-county area since they changed over in June.  Some properties that are currently on received price reductions from the previous AM, but nothing since the swap over.  Here are some examples of properties:

1. Re-Listed 7/31/17: Previous deal fallen thru.  2 price reductions in 4 months prior to previous accepted bid with old AM. Re-list happened directly after deal fell thru. No price reductions since re-list.

2. Re-Listed 7/20/17: 2 price reductions in 2 mo. with previous AM. (Was taken down and re-listed with new realtor [eList] 7/20). Was originally listed 4/6/17, No price reductions since re-list.

3. Listed 6/24/17: 0 price reductions

4. Re-Listed 7/20/17: 0 price reductions. (Was taken down and re-listed with new realtor [eList] 7/20). Was originally listed 4/22/17. 

5. Re-Listed 7/5/17: 0 price reductions. Deal fell thru. Originally listed 6/15/17.

6. Listed 6/21/17: 0 price reductions. 

7. Re-Listed 7/20/17: 0 price reductions. (Was taken down and re-listed with new realtor [eList] 7/20). Was originally listed 6/8/17. 

8. Re-Listed 7/8/17: 1 price reduction/1mo. with previous AM.  (Was taken down and re-listed with new realtor [eList] 7/8). Was originally listed 5/11/17.  No price reductions since re-list.

9. Re-Listed 7/8/17: 0 price reductions. (Was taken down and re-listed with new realtor [eList] 7/8). Was originally listed 5/18/17. 

10. Re-Listed 7/8/17: 0 price reductions. (Was taken down and re-listed with new realtor [eList] 7/8). Was originally listed 6/10/17. 

11. Re-Listed 7/7/17: 1 price reduction/1mo. with previous AM. (Was taken down and re-listed with new realtor [eList] 7/7). Was originally listed 4/26/17. No price reductions since re-list.

[Adam Mills]

@Greg H.

And as a follow-up. Since June 1 (changeover to new AM), all of the accepted bids this area have been 87% or higher Net to HUD. Evidently there have been no manual reviews and acceptances of bids less than 87%. Now I have not personally bid on anything in this time frame, so I can't give first person perspective. I just know under the last AM, it was commonplace to see the 87% threshold broken especially with reduced properties with at least 60 days on market. For example in May 2017 (previous AM) this was the breakdown with % Net to HUD of the current list price at the time:

0 price reductions: 83.33%, 87.22%, 89.43%, 82%, 91.7%, 97.4%, 124.5%, 

1 Price reductions: 75.1%

2 price reductions: 73.9%, 75.9%, 87.8%, 63%, 

3 price reductions: 80.9%, 87.3%, 62.7%

April 2017 (previous AM):

0 reductions: 94%, 86.3%, 99.2%, 95.1%

1 reduction: 72.2%, 87.2%

2 reductions: 91.2%, 77%

3+ reductions: 87.1% (30% last reduction), 103.2% (40% last reduction), 87.2% (30% last reduction), 90.5% (30% last reduction)

[Lauren C.]

Hi All! 

Great thread! I recently purchased a HUD property with an 89% bid.

The house was listed at $124,000

89% NET to HUD would be $110,360

I added 6% (close to $7k) for agent commissions

I put in a bid at $117,341

And it we won!

I do owner occupy this property and so I was able to get in during the first round of bids. Folks on BP thought perhaps the threshold might be lower for owner occupied but I didn't want to risk the property and try. 

If I do bid on another HUD home, I'm going to try say 86% and see if it takes.

Thanks!

[Greg H.]

So for the first time since I have purchased HUD homes in 1990, they now have a field where the seller can state they are placing a cash offer. It will be interesting to see if this makes any difference. The change just started tonight 10/5/17. Previously, bids were either FHA, FHA 203K or cash/other than FHA financing

The difference being a financed bids have 45 days to close vs 30 days for cash

[Don Spafford]

I am looking at a HUD property now in my area, I researched it yesterday (10/4) and it had the cash purchase place to check, at least the HUD service in my area of SE Idaho. I have never bought nor bid on a HUD home but I'm glad I found this thread. It would be a great price and it was just reduced so I may give it a try. According to the % that I can bid, I can actually bid lower than I was planning. But I've got to line up financing first. Any cash lenders out there?! Thanks BP Nation for all the great content here!

[Jean Smith]

I tried to start a thread but I think my computer timed out. Anyhoo...

Hi, I'm new to posting but have been voraciously reading the forums for a few weeks. There's a HUD home in upstate NY that I am interested in purchasing as an owner-occupier. I have submitted 2 cash bids, both were rejected. To the best of my knowledge, I am the only person who has made an offer on this house and the price has been reduced 3 times. The realtor I've been submitting my bids to also represents the property. The realtor that was representing me when I was looking at non-HUD homes bowed out saying the commission would be too small for 2 realtors. Anyway, getting information from the HUD realtor is like pulling teeth. I have to follow up multiple times before I'm told that my bid has been rejected (cancelled) and she insists they never give a counter or any feedback. I'm offering cash. I'd love to have an account on HudHomeStore so I can at least see how many bids have been placed and be notified if/when my bid is rejected. Any suggestions are heartily appreciated.

[Greg H.]

@Jean Smith

Since it has been reduced 3 times, it doesnt really matter whether you are an owner occupant or not.  I would consider submitting as an investor so you are not tied to the 12 months of occupancy.  Your other questions:

-Your agent (the listing agent) has no idea how many bids have been placed nor does anyone else with a Hudhomestore account.  Only agents with an Naid# can access the page to place bids

-Post or email me the numbers on your bid.  Bids usually always receive the generic counter(unless you bid 20K on a 100K property but even then its probable)  The counter will almost always be in the 88% range

-You agent knows the next morning excluding weekends whether the bid was accepted so you are not getting the entire story

[Account Closed]

@Greg H. Your calculations are spot on  I just had a bid on a Hud  property which turned out to be a unusual email from Chronos  The home was under contract and the buyer left the water on or there was a leak and caused about $10,000 in damage (according to Hud) They migrated some of the damage pressured tested the water and it was back on market 

I bid a net of $171,000 or so to net (list price was $195) and received an email from Chronos that the minimum acceptable bid was $171, 321   i was able to up my bid to the acceptable amount and now have it under contract This was the first time Chronos  directly intervened in a bid 

The only bad thing is I am only allowed to activate the electricity and not the water and gas Also cash is an option on the contract and they treat hard money as cash   Electronic signatures are also acceptable goodbye blue ink 

[Greg H.]

@Account Closed

You are correct that if there FSM detects any water issue that they will not let you turn on the water.  Your only option would be a pressure test to try to isolate the issue 

For the past 27+ years the cash or financed have been together in one catagory: "Cash or other financing not involving FHA". In the last couple of weeks they finally separated and now there is a cash catagory. You can see many times in this in other thread where I stated that HUD previous had no idea whether your bid was cash or financed until after the bid was accepted which is not the case any longer

[Steve B.]

@Jean Smith Greg is right, you are not getting the entire story. Sounds like a classic case of bad communication between agent and client. In our area the counter is close to an average of 90% of the list price, unless its been on the market for a long time. Also watch for a price reduction every 30 days, not sure if all markets are like this but in our market its like clockwork. If you want to put an offer on a house and its been active for 28-29 days, wait for the price reduction then offer around 90% net to HUD of the reduced price, chances are you'll get it. PM me if you need any help or have questions, what town/city was the house in?

[Adam Mills]

@Greg H. 

We have finally started to see some price reductions in the past 2 weeks in our area. Took a while from the final turnover between Asset Managers. Also I have seen 4 manual reviews with acceptances below the auto threshold from the new AM. The time frame from bid opening to acceptance on those was pretty universal at 2 weeks. 

Two of the properties were each 2 reductions, 5+ months on market. Accepted bid was 61.5% and 60.8% net to HUD respectively.

Other manual review properties were a 0 reduction, 3 month on market, 76.7% net to HUD acceptance. Also a 1 reduction, 5+ month on market, 59.3% net to HUD.

Will be interesting to get more data and see where the thresholds at manual review go. 

[Kevin Powell]

@Adam Mills how does the manual review process work? Does it happen automatically if the offer is lower than the auto accepted net to HUD? or is there something else that needs done when the bid is submitted to request the manual review?

Thanks,

Kevin

[Greg H.]

@Kevin Powell

Typically, manual reviews happen on properties that have been on the market 60+ days and one if not more price reductions have occurred . The asset manager will take the highest bid to HUD to see if they will accept it

There is no specific formula for the manual review and in most cases you do not even know it happens except if it is accepted.  Occasionally, I receive a call/email asking if I am still interested.  I say "I" because I am a Broker making my own offers.  Otherwise your agent would be contacted.  There is no system in place to ask for a manual review

[Adam Mills]

@Kevin Powell If you bid <87% net to HUD, you will get an automatic rejection notice from HUD (or an invitation to bid at least 87% net to HUD). You need to check the box that says Hold offer for backup when you submit your bid if you plan to submit a bid less than 87% net and have it eligible for a manual review. At some point if the property hasn't had any acceptable bids over the 87% threshold, the Asset Manager will manually review all the bids that have been "held". That is how I understand the process.

@Greg H. can verify if this is the correct process or not. 

[Kevin Powell]

@Adam Mills @Greg H. Thanks for the input on this.  It helps to understand the process and I now have a better picture of how the sub 87% bids are handled.

Thanks for both of your ongoing contributions to BP.

Kevin

[Risha Walden]

Sounds like great advice. I intend to utilize this information going forward as I learn and bid on HUD homes.