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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!
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
I live in the state of Georgia & part of the southeast region, and I should have clarified this is where I reside. I agree with you in that each different asset company can operate slightly differently when it comes to administration, paperwork, certain time and bid period processes, as well as the counter offers inviting people to bid higher. However, this template is used by EVERY asset company managing and selling HUD homes. There is no latitude in price acceptance until after the 2nd reduction, and the invitation to increase an offer through their phony counter offers comes with a price that HUD will accept. Take a look at the counter price offered and match it to this template, and you'll see that the price is spot-on to the dollar. This information has been backed by several asset companies and listing managers in the regional & local REO industry, and since I was a sales manager for Hud's preferred real estate listing broker for 3 years in Atlanta, I've also closed hundreds of Hud deals on the corporate side of the disposition business and I've put almost every acceptance that flowed through that company to this template test. Every single highest offer that I saw @ 90% or more of list price within the bidding periods were accepted, and every single highest offer that came in @ 89.9% or less within that bidding period were rejected. Every bit of information that I was handed down by multiple sources closest to HUD turned out to be unequivocally true. I'm not exactly sure how the other BP members assess their percentages, but I'm talking about straight offer price to list price w/ no accounting for any additional financial terms. If anyone wishes to argue these facts I would be more than happy to take the challenge any time. Anyone can also put this template to the test and see that I'm absolutely spot-on. Or, if it's really necessary for the sake of argument, I'll bring my best source @ Pemco to the platform to confirm this template. The BP community can trust this template every single time, and the experts that provided this 87%-88% number need to recalculate.
Sorry for the above as the format was screwed up when I copied and pasted
Here is one from the bid results :
495-481336 4261 FM 3354 Bishop TX 78343
Listed 2/17/2016 Bid Accepted 3/1/2016 Owner Occupant
List Price $83,000 Net to HUD $70,980 Percentage 85.5
Another one:
491-900609 1294 Sandy Oaks Quinlan Tx 75474
Listed 2/17/2016 Accepted 2/29/2016
List Price $80000 Net to HUD $70500 Percentage 88.125
These are a few examples that 90% is not the number. Additionally, I received a counter of 83% today on a once reduced property today. I am somewhat interested in the property so I do not want to post the case number at this time
Your price reduction percentages are not correct as all asset managers do not use the 10% and then 15% reductions. For properties under $50,000 where HUD offers a flat $1250 commission to each agent the percentages are skewed but the number is somewhere in the minus $2500 + 5 to 6% as the minimum acceptable although occasionally a computer glitch(I assume the software was not set up for a flat fee commission) the counter will come back at minus $2500. I quick note to the asset manager usually resolves the issue
In the early '90s, we bought a HUD and at that time, the bid with the highest NET to HUD was THE winner. Highest net includes fees, closing costs, . . . that stuff.
Great information @Greg H. and @Gordon Vaughn. Thanks for sharing.
I made a offer to hud and they countered and said that was the lowest they would go and any counter would be denied. I turned down the counter. A few weeks later I was notified by e-mail that they had a new minimum price and offered it to me with 24 hours to accept before being relisted. It was above my original bid but I felt it was a good deal and accepted.
I bought through an agent and don't recall if there was a option to counter. If there was, should I have countered lower? Or just let them relist and offered lower?
Greg H. Gordon Vaughn thanks for the information good to know.
Thanks for sharing. Your constructive and helpful contributions are greatly appreciated.
Thanks for that breakdown. I've been looking at the HUD offerings and was wondering how all of that worked. Thank you for sharing.
Thank you to all that have responded and joined this discussion! Again as stated, use this template and see just how accurate it is. And to my friend Greg H; take your net to HUD, add the commissions and any HUD payed closing costs and what percentage do you come up with? 90% sound about right? As I stated before, the template is based on straight offer price to list price and does not account for commissions and closing costs because these are not considered in this template. My price reduction %'s are spot on, and have been for years. I'm right dude, just deal with it.
BTW - I'm curious about your last name H. Obviously your last name begins with H, but what is your full last name?
So you secret is 90% of the sales price and not 90% net to HUD ? Since HUD only shows the "net to HUD " in the bid results and not the bid amount how do you get your tracking information assuming you are not a member of every MLS in Georgia ?
To clarify , you are saying that 81% net to HUD would be accepted on a HUD property that has not been reduced ?
10% off list price (your number)
6% comissions(Listing and selling agent)
3% closing costs allowable by HUD
The 81% number as the acceptable number to HUD is NOT "spot on" . Anyone who deals with HUD on a regular basis only speaks of "net to HUD " as that is the only number that matters to them.
Like many others on BP , I do prefer some element of privacy as I do not want tenants and such googling me and finding threads where I have used them as an example . I enjoy contributing on this site and don't use it for personal promotion. My email and phone number are in my profile so it would take you about 5 seconds to find my last name if you so desire
@John Rogers. What numbers are you seeing on Florida HUD properties ?
@Gordon Vaughn, @Greg H., I really appreciate all the information you guys shared here. I am about to bid on one or 2 HUD homes so I will go over this info again to see if I can use anything from it before going forward. My first instinct was to ask the Realtor but wasn't sure how good his knowledge on the subject is.
Yes, %'s based on offer price to sales price & NOT net to HUD. And yes I agree with you in that the net to HUD is the focal point on just about every page of every offer, counter, rejection, and acknowledgment through their systems. However public knowledge of this acceptance template was never HUD's intention, as this would be a strategic faux pas by all accounts. It's meant to be a guideline for asset managers only. There are a lot of things we learn in this business as we go, and there are also a lot of trade secrets we learn from insiders that we meet and do business with along the way. I'm sure you've learned many things along the way that I don't know about, and would not presume to know about. This template is "inside intel" that has been shared with me by a very reliable inside source, confirmed by other inside sources, which I have put through the test time and time again. I've got too much experience and knowledge of this business to throw around arbitrary posts on topics I know nothing about, and I don't make up BS just to read my own topics with a self-indulgent and narcissistic gloat. Quite honestly I'm having trouble understanding your desire to battle and disprove this simply because...why? Just because you have never heard of this doesn't disprove it's validity. I hardly rely on HUD properties to make a living as HUD opportunities in Metro Atlanta are extremely scarce, and I'm not trying to be BP's "King of HUD". You can gladly have that title. And really, a step further, I could care less whether people believe it or not! People will, or they wont. I'm just trying to give some advice to the good people here in the BP community, that may give them some bidding leverage and save them a little time and money. This isn't a competition for me.
Hello Lee. Unfortunately most Realtors don't have a broad knowledge of bidding on REO's, HUD's or distressed property. Your best option is to find a strong local agent or Realtor right here on Bigger Pockets to help you submit your bids.
Oh, and for the record Greg, there are only 2 MLS systems that matter in Georgia - Gamls and Fmls. Atlanta is the only major city in Georgia, Macon uses Gamls almost exclusively and is not considered a major city. Also, my tracking information is based only on properties that were listed with Southern REO, which was HUD's preferred regional listing agency to which I worked as sales agent & sales manager for nearly 3 years.
How are you guys finding cash buyers for HUD homes?
@Gordon Vaughn, I will definitely try this out. Seems that is how it worked couple years ago when I worked as a Buyer's agent under a HUD listing broker. In my area of Athens, the Hud homes don't last long at all, or they are way over priced, but maybe not once the 1st reduction happens.
I am sure the formula varies by region. And there appear to be some bids that are too low for the computer to accept, so they send them over to a human for review.
So I put your "Best Kept Secret" to the test with a HUD bid and have posted a screen shot as evidence. As you can see, I bid exactly 90% of the list price per your template and my bid was not accepted. I received a counter with a net to HUD of 88%. This is clearly within the guidelines that I have indicated would be acceptable for a HUD home without any price reductions.
Gordan- I have made a living for the last 25+ years buying HUD properties as 90%+ of my acquired inventory( My guess is +-400) I have an assistant track the properties that meet my criteria with the list price, price reductions and net to HUD. I make it my business to know what numbers are acceptable to HUD. I did make allowances that the numbers may vary by region but you have indicated that this is not the case
I to want help people here on BP with the HUD process and have helped scores publicly and privately. We both want to save people time and money and to do that those of us with the knowledge need to convey information as accurately as possible. Hope this helps on your next bid !
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
@Greg H. I have decided that it's probably best that I buy the HUD home myself and then sell. Now the issue is finding the cash. Perhaps I can find a private lender or use a Hard-money lender. Does anybody know how long one can take out a $30k - $40k loan with hard money... generally speaking?
Is it difficult to find an Investor cash buyer to purchase HUD home in "as-is" condition? How do buyers feel about not having the water and electrical turned on when checking out the property? Are most cash Investors ok with accepting the Property Condition Report instead of a full-blown inspection to make the purchase. Any examples you can share would be much appreciated.