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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!
Originally posted by @Amanda Whale:
any ideas on what we should be bidding in rural west coast?...house need some about 3-5k in reno and has been sitting for 3-4?years now maybe..
Keep in mind that amount of reno or the amount of time the property has been sitting is no factor in what amount that HUD will accept. It is solely based on days on market and to a lessor extent bidding activity
If you want to provide the number and which bidding period(exclusive or extended), I can provide some guidance
Okay the price has now been reduced 2 times and started bidding on April 11th I believe. I think my realtor has that information.
If it was just opened for bidding on April 11th, there is no way it has been reduced twice. You can PM the info or post it here but the information needed would be:
Starting price
Days on market
Number of price reductions
The ONLY number that will get you automatic acceptance(if you are the highest bidder that day) is a net to HUD of 87-88%
Starting price 120
Days on market 60
Number of price reductions 120 to 104 to 96
I found th that info on zillow
To get automatic acceptance, you are going to have to net 87-88%. So if you really want the property or are going to live there and the numbers work that is the number
You can try maybe 10% lower and it may get accepted at some point in the coming weeks but keep in mind if someone bids even $1 more during that time you are out
Also says listed for sale on 3/1.
thanks so much for all the info!
If HUD is looking at the net, then how can buyers use HUD's Good Neighbor Next Door program if you want to purchase at a 50% discount?
This is the program: About Good Neighbor Next Door
Law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD's Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.
Very few, maybe 1% of HUD homes are eligible for the programs that you listed. Currently, there are zero available in Texas. The ones that are have their own bidding period before the exclusive period for owner occupants begin
So , any numbers or strategies mentioned in this thread do not apply
Gordon Vaughn Greg H. Thank you both for your posts. Can both of you let me know what you think about this deal-
Looking at purchasing a HUD home in Colorado.
Price has dropped one time since initial listing and it dropped 20%. What is the lowest price I can offer and still get the house based on no other offers? Is it 70% of the new lower asking price? Can I go any lower due to rehab costs?
Thanks
Hi All,
There is another thread about this topic floating around that I found super helpful when bidding on a HUD home which I'm currently under contract on. Thought I'd share
My bid was accepted at 89% net to HUD during the Owner Occupant period. In the other thread, there was mix thoughts about whether or not the net to HUD percentage threshold would be less during the OO period. We wanted the property and didn't want to risk it with a lower offer so unfortunately I am unable to say from my experience.
Originally posted by @Todd Schmitz:
Gordon Vaughn Greg H. Thank you both for your posts. Can both of you let me know what you think about this deal-
Looking at purchasing a HUD home in Colorado.
Price has dropped one time since initial listing and it dropped 20%. What is the lowest price I can offer and still get the house based on no other offers? Is it 70% of the new lower asking price? Can I go any lower due to rehab costs?
Thanks
I answered on your other thread. Rehab costs are not a factor at all to HUD in considering bids. Like I say to everyone, 87-88% is the number for automatic acceptance. If the deal is personal(going to live there) and the numbers work, that is the number. If your just casting a net and hope to catch something, you can go lower and wait
After 44 days on the market a HUD house I previously looked at just dropped it's list price by 20%. I still wouldn't pay the current listed price, but can anyone provide insight as to how low of an offer might be considered if there are no higher offers?
Originally posted by @Eric James:
After 44 days on the market a HUD house I previously looked at just dropped it's list price by 20%. I still wouldn't pay the current listed price, but can anyone provide insight as to how low of an offer might be considered if there are no higher offers?
The lowest offer that will be automatically accepted at this point will be a net to HUD of 87-88%. You can place a lower offer that might be manually reviewed and accepted at some point if no other higher offers come in. With a new price drop, I would not expect a manual review for at least 10-14 days
Originally posted by @Chris T.:
Can non-realtors wholesale HUD houses?
I came across 2 wholesalers listing the hud house at the same price on the same day. But when I checked Redfin, it looks like it's under contract a day ago... so my question is who does?
Several things here:
-Only one person has the accepted bid. Hudhomestore is the only accurate way to determine whether a HUD property is active or not
-HUD homes can be wholesaled but it can be difficult. All bids have to be placed through an agent and contracts cannot be assigned so a double close will be necessary. It is also against HUD guidelines to market a HUD property while it is under contract. You will receive a hand slap for doing so
@Greg H. I noticed that my area has recently gotten a new Asset Manager (KM MINEMIER & ASSOCIATES LLC). The previous Asset Manager (Q Integrated) would reduce the price (1st reduction) around the 45 day mark. Subsequent price reductions would happen around 30 days after the previous reduction. Several properties have been 60 days+ with no reduction. 87% still looks to be a good figure on automatic acceptance from what I can tell. Have you noticed any change in trends with regards to price reductions and auto acceptance in your area?
No change with the auto acceptance number as it is still 87-88%
The price reductions are no longer automatic as to time or price. I have not been able to detect a pattern
Additional recent changes include: An agent can no longer collect a commission if they are a principal in the transaction. This has gone back an forth several times over the last 25+ years. As a cash buyer this does not effect me at all as I just reduce my bid price
Investors are no longer allowed to add closing costs to their bid
This thing is like a book! Just read all 9 pages.
@Greg H., thanks for all your input, much appreciated! You're really in the trenches. For Greg or whoever else wants to chime in.
I'm looking at a couple HUD properties as investments in Missouri. A few questions.
1. Does of the ~88% amount of the asking price still remain fairly true? I'm a little lost on asking price vs. net. An example, if the house is currently priced at $100,000 (extended bidding allowed), and I offered 88k, would my offer be accepted. Would the closing costs and ~6% agent fees be included, or added on top of that?
2. I put in a super low ball offer and got a counter. I understand a counter is primarily an offer to rebid. Is the best strategy to keep going up $500 or $1000 daily, hoping for a manual review? I wouldn't go past my max. This particular house has been on the market 30 days. Just curious if I should put in my max bid, or what the best strategy is.
3. I called the listing agent on another house and was told "HUD really would like to unload this house". Was that bologna, or did that agent know something?
4. Any other hints or tips on properties that have been listed with HUD 30+ days?
Your welcome. Here are the answers:
1. Yes. The 87-88% for automatic acceptance still remains true. Keep in mind that this is NET to HUD so it includes all commissions. HUD no longer allows will pay closing costs for investors. So you have play with the numbers a bit but on $100000 property the minimum bid would be:
+-93620 Bid
5617 Realtor Commissions
88,003 NET to HUD
2. A lower offer will never be automatically accepted by could be at some point. The counter will always be the same 87-88%. My research has shown no benefit to bidding daily. A lower bid may be manually reviewed and accepted at some point to which there is no pattern. More likely after 60+ days. Go your max and wait keeping in mind that you can always be beat by $1
3. The listing agent has very little knowledge. They have no idea how many bids are being placed or the amounts until HUD accepts a bid. For anyone who challenges that, I very rarely get a bid that was not manually reviewed. If the listing agent had the knowledge, I would get outbid by $1 more often than not
4. No the value and stick to your number. There is always another deal out there
I'm gonna have to pay for a pro account here soon, I feel bad getting all this information for free!
@Greg H., I called the listing agent to ask about the aforementioned property and another I haven't seen. This second property's contract just fell through. The story goes, the listing agents handyman did an inspection at 10 am on the day of closing. At 11:45 am the listing agent goes to do the final walk through with the buyers. In that 1:45 time period the copper pipe was stolen, and the contract fell apart.
That was 4 weeks ago. This property has been listed (on and off since there's at least 1 contract that fell apart) since April 2017. It's a 60+ day listing, and a contract recently fell apart. The asking price for the contract was $43,460. HUD has it listed for $39,144. Think offering less than the 88% rule will work here? In other words WWGD (What Would Greg Do)?
To me a property is never personal so my answer reflects that. I was able to pull up the property and do some basic research and based on that a lower number has a really good chance. Bid the number that works for you based on the ARV and wait. It may take a few days or even a couple of weeks
I would also not worry about a contract falling apart as it happens with HUD all the time. I just closed on a great one where the owner occupant backed out because in her mind it had "holes" in the roof ! The roof was less than 5 years old but she saw light as the attic cover was off and the roof had ridge vents for ventilation.... lol