-
All Forum Categories
-
Followed Discussions
-
Followed Categories
-
Followed People
-
Followed Locations
-
Market News & Data
-
General Info
-
Real Estate Strategies
- House Hacking
- Commercial Real Estate Investing
- BRRRR - Buy, Rehab, Rent, Refinance, Repeat
- Mobile Home Park Investing
- Innovative Strategies
- Multi-Family and Apartment Investing
- Land & New Construction
- Wholesaling
- Rehabbing & House Flipping
-
Short-Term & Vacation Rental Discussions
presented by
- Tax Liens & Mortgage Notes
- Medium-Term Rentals
- Buying & Selling Small Businesses
- Outdoor Hospitality
-
Landlording & Rental Properties
-
Real Estate Professionals
-
Financial, Tax, & Legal
-
Real Estate Classifieds
-
Reviews & Feedback
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!
I had a bid countered yesterday (Oklahoma). Has been on the market for over 60 days. The counter was 88% net to HUD.
What was your bid (% to HUD)? Even though the counter is 88% (which I also have personally seen in the last week on a property), I have seen some acceptances on the same day as bid opening (which tells me they don't have to manually review) at 84-87%. Not a huge difference, but every little bit helps if you can get it at 86% instead of 88%.
Have you had a situation where you got confirmation that your bid was submitted, but did not get an acceptance/rejection email?
Three separate bids a week ago, confirmation that the bid was submitted, but still nothing in regards to acceptance or rejection. They were less than 87-88% and checked hold for backup. Usually you get the automatic rejection and invitation to bid 87-88% net to HUD, but haven't this time. MLS now has two of them as Contingent and the other still available on Homestore.
Do they reject your bid and give no notification?
I another bid was accepted, you would not get a notification. The only way to know is that the property would disappear from hudhomestore
Occasionally I have not received a notification and the property is still available
10-4. The two that went Contingent did in fact go off hudhomestore. The third property that got no notification is still available on hudhomestore. What would you do in that situation? Re-bid?
We are looking to buy a very large portion of HUD Units up to 10,000.
Please let me know what you have.
Christopher B. We are looking to buy hundreds of HUD Units.
Please let me know what you have.
I submitted an offer (through my RE agent) for a HUDstore property. My agent told me they countered back to her with a 'net amount to HUD', with their closing costs being in addition to this. Does this sound correct? If so, when submitting an initial bid to HUD, how can you know the 'net to HUD' if you don't know exactly how much their closing costs will be?
Originally posted by @Eric James:
I submitted an offer (through my RE agent) for a HUDstore property. My agent told me they countered back to her with a 'net amount to HUD', with their closing costs being in addition to this. Does this sound correct? If so, when submitting an initial bid to HUD, how can you know the 'net to HUD' if you don't know exactly how much their closing costs will be?
That is correct. Hud evaluates offers as the highest net to them. Your agent can always provide a screenshot of the bid confirmation
On an investor bid , the only costs added to the net are agent commissions as HUD pays no closing costs on investor bids. You will be responsible for all the closing costs associated with the transaction and that is determined by your title company and your lender if applicable.
Thanks Greg.
If I were to purchase a HUD home during the owner-occupant period (to use as my primary residence) would they be more likely to accept a net to HUD lower than 88% of asking? Also, would this be similar for Homepath properties?
Originally posted by @Eric James:
If I were to purchase a HUD home during the owner-occupant period (to use as my primary residence) would they be more likely to accept a net to HUD lower than 88% of asking? Also, would this be similar for Homepath properties?
The owner occupant period only give OO priority as far as being able to purchase before investors have an opportunity. Since the pros New to the market, you will get no concessions on price
Homepath does not operate the same way other than it also offers an owner occupant only period (First Look)
Originally posted by @Greg H.:
The owner occupant period only give OO priority as far as being able to purchase before investors have an opportunity. Since the pros New to the market, you will get no concessions on priceHomepath does not operate the same way other than it also offers an owner occupant only period (First Look)
Thanks Greg. So, there really seems to be no advantage at all for an OO, considering almost all the HUD homes I see for sale do not sell for the initial listing price.
I always appreciate your shared knowledge!
When you say 90 percent of Listing Price is what they will accept during the first time around, do you mean this as their net or gross? Is it the 90 percent plus the closing cost and realtor commission the HUD will pay or just 90 percent of the listing price period?
Originally posted by @Suzy Smith:When you say 90 percent of Listing Price is what they will accept during the first time around, do you mean this as their net or gross? Is it the 90 percent plus the closing cost and realtor commission the HUD will pay or just 90 percent of the listing price period?
87-88% net to HUD is what will be automatically accepted by HUD. The net includes commissions and any closing costs.
HUD has a form (OMB Approval No. 2502-0589) where they list the rules for letting an owner sell a home prior to foreclosure. If HUD gives you the approval to sell your own, they do an "as is" appraisal and then let you list it for that price for 4 months. The guidelines they provide are in line with @Greg H. and my experience bidding on HUD Homes.
@Greg K., very helpful.
@Gordon Vaughn great post, thanks for sharing. Keep them coming!
Originally posted by @Greg H.: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
Greg, what is the "on market" mean, would pending period of previous failed contract still consider as "on market" time? Thanks, Maurice
Originally posted by @Greg H.: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
Hey greg, thanks for your insight. Any specific pattern for CHRONOS SOLUTIONS LLC since we are in the same market.
I've dealt with HUD homes several times in northwest Indiana and Chicago, and they are a huge pain in the *** everything is a rush process. They very rarely go down in price. In fact, anytime someone is rushing someone's else process in a sale, usually raises red flags to me. The entire bidding process is horrible. Usually the occasion good ones that are good deals are snatched up very quickly. From my experience. The only people whom should go after HUD homes are the ones who knew about it before it was listed on the market or "home buyers" and not "investors" . Lastly, I think many of HUD homes are way overpriced. Let's see how HUD reacts when the recession or depression happens....
I have been buying HUD properties for myself and clients for decades, going back to the days when everything was on paper. The first property that I bought from HUD was June 30, 1986, which i kept for the next 24 years and rented it out. I have been buying HUDs and selling HUDs to clients ever since. Just as the real estate market has changed this year, lower inventory, lower interest rates, higher buyer demand, so has the HUD market. There are fewer HUD properties because fewer properties are going to foreclosure. Also more properties are being bought at the Sheriff Foreclosure sale, thereby reducing the properties going to HUD to sell. Its been a seller's market in general for real estate, and likewise for HUD. despite the change in the market, better if you are selling and not as good if you are buying, there are still properties that HUD is selling. But there is lots of competition.
I did recently buy a HUD property for myself, that was a little different. It was a HUD property that was a Reverse Mortgage. The owner passed away, and the mortgage lender offered the property back to the family of the deceased for $195,000. The family declined, and so the property was foreclosed, nobody bought at the Sheriff Sale and it eventually got to HUD. This whole process took two years as the house sat empty. The assessment on the property was about $275,000 market value and HUD offered it for $215,000. Apparently there were no satisfactory owner occupied bids, and I bid the first day of the investor period and got the property for $193,900, net to HUD; or 90% of asking price. That's not the lowest net I was ever awarded, my personal record is 44% of asking price.
There was a recent another HUD that I was interested in and when to view during the owner occupant period, that I never got a chance to bid as it was sold in the owner occupant period for 160% of asking. Yes, just like in the regular MLS market, HUD properties are receiving bids above asking; which makes the # 1 HUD question asked "How low can I bid?" mute.
Let me add this to the discussion:
in 2015 there were 280 HUDs in PA
in 2018 there were 100 HUDs in PA
today in 2020 there are 28 HUDs in PA
These are just snapshots of one period in time, but they are telling, and are representative of other states around the country. Since 2015, in PA, the number of HUD properties available has dropped 90%. (there are only 13 in CA, btw today) In PA the asking prices range from $12,390 (Altoona) to $220,000 (Philadelphia and Saylorsburg)
To anyone reading this in 2020: This method worked great when we were doing it back in 2014 and 2015 and cranked out close to 100 flips. HUD used to have a huge inventory of homes. Now their inventory is next to nothing and usually in very remote areas.
Originally posted by @Maurice George:Originally posted by @Greg H.: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
Hey greg, thanks for your insight. Any specific pattern for CHRONOS SOLUTIONS LLC since we are in the same market.
Sorry for the late reply. Most of my HUD purchases are through Chronos so I know just about everyone there. Reality is today, unless the property has been on the market for 45-60Days a discount off the 87-88% net to HUD is unlikely. I would be happy to help further with more specific details
HUD's inventory is dropping due to Covid drastically reducing the number of foreclosures and should continue to do so for the foreseeable future. My guess is it will be a year or more before inventory increases