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!

[Denise Brown-Puryear]

Hi All. First thank you for the great information as I have been reading everyone's comments and questions. I've looked at HUD properties off and on over the years, but never ventured into that area of purchasing. However, since I've been in NC (for the past 8 years) from NY; it seems more attractive, just dependent upon location, price and ARV. My husband and I are looking to increase our inventory as we are primarily "buy & hold" investors. My question is: Would HUD properties fit into our investment strategy? We currently own several town home units outside of Greensboro, NC and now are looking at the suburbs of Charlotte (i.e., Condord & Kannapolis). Any input would be helpful. Thanks in advance.

[Tomas Chao]

Great thread guys. Thanks

[David Krulac]

We have gotten HUD bids accepted at as low as 44% of current listed price. Rarely have we gone as high as 90%, though any bid depends on the value of the specific property. There have been some occasions where we have gone over their asking price, but again that is a rarity.

As far as "secrets", one of the best is the neighbor next door, where you can buy HUDs for 50% of the current asking price.  They will not accept less than 50%, and you have to live in the property for 3 years, and be a police person, fire fighter, EMT or teacher.

[Christopher B.]

@David Krulac I too get HUD bid accepted 44%. It's a shame I don't have more investors in New York coming to me to bid for them.

[David Krulac]

@Christopher B.

I have a list of clients, but there are opportunities for more people to bid.  Some areas of the country have a lot more foreclosures and hence more HUDs.  CA for one has a low number of HUDs especially for being the largest state. 

[Dawn White]

Gordon, Help! This is my first HUD transaction if I decide to do it. I am scheduled to look at the inside of a HUD house tomorrow in my area that has comps 142K-160K. The foreclosed amount was $100,700. The first listing was put out at $149.9K in Jan, in Feb they reduced it to $134K, & in Mar they reduced it again to $119.2K, which is where it remains. I'm familiar with the house & the area and am pretty sure its clean & just needs to be updated (wallpaper/carpet/new cab doors/etc)...not a lot of expense needed. I'd love to offer under 100K. I've seen many postings on BP...some say my offer shouldn't be under 108K. Since HUD has reduced this 2x, do you think I can bid at 70% of $119,200 which is $83,440. Is that realistic?

[Greg H.]

@Dawn White

Thanks for reviving this thread as it definitely needs to be updated with new asset managers taking over. If you read through the thread, the secrets where even outdated at the time. Since flipping HUD homes have been my livelihood for 20+ years, I and no doubt many other have not disclosed all the formulas and secrets. Many people refer in this thread of submitting low offers just to get a counter(explained the counter in the other thread). I have placed bids in the 80% range in the last week that were not even countered. This would never happened previously unless another bid was accepted. But as I indicated the formula seems to be up in the air at this point

Since you are in a different region, I went through 10 or so of the last accepted investor bids in North Carolina and not one of them was accepted with a net below +-87%.  You can check as well under the Bid Results tab on the HUDhomestore website.  You can offer any price you want.  I just wanted to give you a realistic number based on what I am seeing at the moment

[Dawn White]

Thanks Greg H! Does it ever matter if they are not getting any other bids? Like I said, its been at this price since March and the realtor I spoke with said its been stagnant...not much activity...and that everyone looking at it is looking as an owner/occupant and don't want to have to renovate. Do HUD homes ever get reduced after the 2nd time? and would the foreclosed amount ever make a difference?

[Gordon Vaughn]

Hi Dawn. This appears to be a question of value more than anything. Sure, you can submit an offer @ 70% of current list price, but will you win the bid? If HUD doesn't have a better offer on the table you might just see an accepted offer! However, how good is this deal at a purchase of $90K? $95K? Will an investor be likely to come around & offer a little more than you based on his/her criteria and exit strategy? In a scarce market you still want to stay competitive in your bidding because that 2nd price reduction may have been the redux that all the other potential bidders were looking for! Also, what's your exit strategy? You will probably have a little more price flexibility if you're looking to hold and rent the home, as rehab costs will be considerably lower on a rental as opposed to a retail (flip). How does this home fare against the other homes selling between $142K-$160K? Is it bigger? More beds and baths? Better curb appeal? Essentially, is this home superior or inferior and can it pull an after repair value closer to $160K than $142K? If the house is really clean a flip investor may look at the deal as a simple upgrade/update rehab, which might work within their numbers at $90K-$95K. Put all of your indicators at play in order to make the best decision. If you really love this house and have a solid exit strategy for it, be aggressive with your offer as long as the numbers work! Don't let the other investor snatch it from you for $2,000 more than what you offered because you were trying to get the absolute lowest price you could for it!

Hope this helps!  

[Gordon Vaughn]

There he his.... Mister HUD!! Don't you mean taken over by YOU. You crack me up Greg...

[Dawn White]

Thanks for the info...the numbers will work the way I want if under 105K.  I'm planning my exit as a lease-option but want to make sure I can resell it after an update for profit as well...just in case.  I'm looking for more rental #s in the area now.

You 2 crack me up...you really need to call a truce!  There is room for both of the big boys in the market!  LOL

[Greg H.]

Originally posted by @Dawn White:

Thanks Greg H! Does it ever matter if they are not getting any other bids? Like I said, its been at this price since March and the realtor I spoke with said its been stagnant...not much activity...and that everyone looking at it is looking as an owner/occupant and don't want to have to renovate. Do HUD homes ever get reduced after the 2nd time? and would the foreclosed amount ever make a difference?

 The listing agent has zero knowledge of the number or price of any offers other than ones they submit personally.

The property will continue to get reduced. The intervals and % of intervals used to be fixed but I do not see a consistent pattern at this point

The foreclosed amount have no bearing at all

Is the property insured or uninsured? It is difficult for owner occupants to close on HUD homes as no repairs can be made before closing

Like I said, I am not trying to dissuade your from your number I am just providing information based on what I am seeing at this time albeit a small sample under the new AM.  No matter how much you like the house the numbers are the numbers and there is no reason to overpay . Feel free to PM or call me if I can help

[Dawn White]

Thanks.  Your info is helpful.  I will repost with the results!

[Gordon Vaughn]

Gotcha. From what I've heard, most of North Carolina is seeing a decent uptick in value this Spring/Summer. Seems like a great strategy! Maybe a LP @ full market price + 6%-8% after 12 months (??).   

Lol... I know, right? I don't like the arrogance & patronage with which he directs towards me through this post. Starting out his post with "this thread needs to be updated with new asset managers taking over", then proceeds to talk about his experience while lightly sprinkling some discredit to my post. I mean, really???? There's gotta be a more productive use of his time...

[Cheryl Crockett]

Thank you for this information!

[Chris Martin]

Sorry, some of these out of state posters are off. The fact is that the property is in Surry county. Nothing against Surry county, which is an absolutely beautiful part of NC by the way, but the RE markets in these small population counties in NC don't behave the same as the Wake and Mecklenburg types. Completely different markets. With zero (maybe negative) population growth this century, investing (residentially) in these small population areas, to me, requires a completely different approach than in urban areas. Unless you have buyer-in-hand or some other mission (e.g. subsidized housing or religious-based motives), I seriously think the risks are way more substantial than most people could handle.

Regarding your lease option plan, just make sure you follow which came about largely because of abuses primarily in urban NC growth markets where option holders were screwed when prices spiked. The laws apply in all 100 counties. Not sure if they are enforced equally though.

[more ranting and unproductive commentary removed]

Personally, I'd bid low and wait a month for HUD to capitulate. But I'm not a motivated buyer like most people I see now. [This comment not directed at Dawn.]

Make sure your funding source (I assume a traditional bank) knows this is a HUD IE property and that the appraisal will show exceptions that underwriters will catch. Details.

[Gregory Walter]

Markets are different. If your in a market like Charlotte, its usually not a matter of what the seller will take, its a matter of if you bid is going to be high enough so your bid is not outbid. Those guys that said THEY gotten bids accepted at 44% implying that they have some special sauce are something else. My BS meter is ringing. If a property sells at 44% of list price there is probably some circumstance that lead to a better offer not being made. In the end its not the percentage of list price, its the value of deal that matters. Your not bidding against HUD, your bidding against other buyers anyway.

[Alex Franks]

Originally posted by @Gregory Walter:

Markets are different. If your in a market like Charlotte, its usually not a matter of what the seller will take, its a matter of if you bid is going to be high enough so your bid is not outbid. Those guys that said THEY gotten bids accepted at 44% implying that they have some special sauce are something else. My BS meter is ringing. If a property sells at 44% of list price there is probably some circumstance that lead to a better offer not being made. In the end its not the percentage of list price, its the value of deal that matters. Your not bidding against HUD, your bidding against other buyers anyway.

@Gregory Walter You are correct complete BS on what their saying the market here or in most states is a sellers market. Hud or any of the auction sites. Properties are being sold at top dollar. I Used to bid on Hud in Charlotte 2009-2014 and got some of my best deals. Most of the time 80 % to 85 % would work if I was not out bid by some one else. I was shotgunning mutilple offers. So I appreciate you calling their BS out.

Look forward to meeting at some point.

Alex

[Greg H.]

@Gregory Walter

When people are referring to those kind of numbers they are using the original list price(HUD Appraised Value) For example :

$100000 Original list price

$81000 Current List price after 2 10% reductions so the property has been on the market for 60+ days

$56000 Accepted Bid

So the bid was 56% of list price

This was doable in some parts of the country and I have had bids accepted much lower than that.  8-10 years ago I had several under 10% of the Original list price

As I said earlier, I am not seeing any of this.  I have had several 80% bids not even receive a counter.  This could be do to the new Asset Manager settling in or a permanent change in policy.  Only time will tell.  IMO, this is going to lead to some long days on the market especially with many rural properties so I imagine adjustments will be made

[Dawn White]

Talked with a so-called HUD expert last night at a REIA meeting and he was from the Kernersville area of NC. He says 81% is the lowest he sees these days in his area (Kernersville, NC) but thinks it might be worth me putting in a much lower bid since its been on the market for 6 months. If it gets denied, I could just wait it out (he suspects it will be dropped again soon). I am much further west, more toward the mountains in a smaller community with very little competition to fear. I'm not so much as trying to get the house for nothing, but my main concern is that I can get the numbers to work if I have to hold it for awhile until it sells. So I need a low price on the house and low cost on the financing. .

Right now I don't think we'd qualify for another traditional mortgage, since we are on a single avg. income personally and are a brand new LLC...no experience in investing. So I'm wondering, once rehab is done (with hard money), I'm assuming, if needed, it would be easier to refi the property with a traditional mortgage . Is that a correct assumption?

 I meet with some contractors Monday  to confirm my rehab numbers and will keep you updated on the progress.  Thanks for all your input!

[Gordon Vaughn]

If you're holding the property to rent, you'll definitely need to get out of that expensive hard money and into permanent financing as soon as the home is renovated. Lenders will not refi if your house is listed or you directly express the intention to list and/or flip the home. Nonetheless, those hard money payments are going to eat you alive so time is of the essence once you close.

[Dawn White]

No, we have rethought the exit strategy and we'll really need to sell it ASAP.  Probably start by marketing it to local companies/hospitals for purchase to relocating executives/staff, as soon as we have rehab started since we suspect it will take awhile.  Didn't realize lenders won't refi if the house is being listed...good to know.  Thanks.

[Larry Watson]

Hey Dawn,

I recently sold my business and doing real estate full time and as busy as ever. If you ever have deals that you turn down or some that I turn down we can stay in touch. I am going to St. Marteen for two weeks but if you want to talk when I get back that would be great.

[Dawn White]

Will do!  Enjoy your vacation!

[Shane H.]

@Greg H.   @Gordon Vaughn  @Andrew Syrios

Enjoyed the thread and the info contained within. Andrew I'm guessing you've bought a # of HUD homes in the KC market? If so I'm sure there's a fair share like Wichita that get the power shut off and the basement floods.

Greg, Gordon, Andrew -- have you noticed any particular rhyme or reason to what HUD will accept on a HUD house that has mold in it?

I looked at one where I feel comfortable bidding 59% of what HUD is asking due to the water damage in the basement (I couldnt see mold but I'm pretty sensitive to it and could definitely smell it -- was very strong and I suffered from some congestion for 2-3 hours after being in the basement)

HUD has not disclosed the mold (unsure if the PM company missed it or their inspections were performed before the basement flooded -- guessing it only got 1-2" of water in it) however it was in the house long enough the humidity warped some of the flooring upstairs and warped the door going down to the basement -- however I did not see or smell any signs of mold upstairs so feel for the most part comfortable buying the house.

Am I wasting my time submitting a bid 59% of what HUD is asking? I have to be in this area with the repairs I think the house needs to bring it up to my standards for investment/long term maintenance for it's future life as a rental or sale down the road when the neighborhood is a little more revived. Per the listing agent there have been no bids submitted at all on the house and I think most have been scared away. I want to buy this as an owner occupant, live there for a couple years then move on to something else as I could potentially create a lot of equity and the house would later fill my needs after I move out of serving my college student market. I've got my reasons on why I believe in the upside and want to limit my details on the house as there are a # of other local investors on BP.

Enjoy the thread guys and would appreciate any feedback -- dont want to waste my agents time bidding if it doesnt have a chance in hell of being accepted.  I found out the house has windows that are prone to fail as well hence the reason for a lower #.  It's sad as they appeared to be nice Pella double pane casement windows - however they were made in a bad part of Pellas history and are certain to be rotted where I cant see them.  The appeal of the house is it's had massive remodeling done in the past 4 years upstairs and is completely modern there, just had some poor craftmanship on a couple areas (tile work primarily).  Not much to be done on the main floor besides minor things.  most work is flooring, remediating the basement, paint and updating one bathroom along with siding repairs/likely window replacement and massive landscaping and  concrete work I like doing.

(HUD is selling as FHA Insurable if that makes a difference -- I dont see how this house would qualify for traditional FHA financing but maybe FHA loan underwriters hit the crack pipe every now and again and would let this one slide) I wont have an issue getting financing as an owner occupant due to my banking connections/past experience but am unsure how most will get financing on the O/O side most local investors will likely ignore the windows and pass them off to the next owner sadly if they are flipping. I cant do that plus it makes no sense with a 10 year timeline to hold the property).