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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!
Christopher Baker , I buy HUD homes for cash, but don't wholesale them.
I have my contractor walk through it instead of a home inspection.
Once you do a few, you learn to expect pipe bursts and leaks, sewer backups, etc so just factor those into your rehab estimate.
The big question if you are looking to wholesale is -
(a) I believe HUD has a restriction on the deed saying you cannot flip/wholesale it. Not sure if this is just for owner occupied properties.
(b) Most serious cash buyers search HUD properties on a daily basis, so why would they buy a property from you that they could have bought cheaper? Now I have purchased back ones I wasn't the high bidder on, but that is rare.
There are no deed restrictions on Hud homes for either investors or owner occupants. Owner Occupants do sign an addendum however saying that they will occupy for at least 1 year
As far as selling "as-is" without inspections go . If the deal is good enough you can find an investor to buy it without inspections.
Regarding Gordon's comment "...I'm not exactly sure how the other BP members assess their percentages..." How you do it, with some statistical certainty, is to reverse engineer the algorithm. We did that for years up until HMB and other 'broadband brokers' closed shop for the unified HUD systems.
I'm not buying at the moment but some of your observations are somewhat consistent with the general process we observed. @Greg H observations are more in line with what we saw. The variables in your algorithm should take into account DOM, bid counts, MSA, O/O bid density. This is all historic, but I'd bet the fundamentals aren't too dissimilar now. If you don't, your not getting the best deal, IMO. With about 600,000 sales records spanning 3 states we could tell with some certainty what bids would work and their statistical acceptance rate(s).
I can tell you there was never a bid accepted below 50%, even in the GR. You'd have to wait for price reductions then bid over 50% (e.g. 51%) and then DOM was an issue. Bid of last resort we called it. It helped us buy Garner NC SFR for $19K. Hard to believe now, in today's seller's market with billions in cash chasing too few deals.
BTW, the new system doesn't provide documentation of all (including not accepted) bids.
It's called lack of transparency. Probably a good thing for US tax payers since we are in a seller's market. That killed (along with the recovered market) my company's program, but probably saved billions in US tax dollars since people routinely overpay for housing product.
Is their a way to work around the exclusive listing period? In other words, can I use someone as owner occupant (family member) to get in during that period and still flip property? I will be using cash so FHA guidelines would not apply. Are there any other restrictions I should consider like owner must occupy property for certain amount of time before selling?
Read the owner occupant certification form. Don't sign it unless it is accurate. If you want to buy as an investor, place your bid as soon as the property switches from exclusive to extended.
Chris - very clever interpretation "reverse engineer the algorithm". I never thought about it like that before, but very true and a crazy smart way to look at it! I agree with everything you said.
Eric- I don't know of any way to get around the owner occ period if you're buying as an investment. If you take a chance, sign the OO certificate and it's found out that you fraudulently acknowledged you're an OO, I think the fine is up to $100,000 and 1 year in prison(??). There are certain circumstances whereby you'd be allowed to sell within the period, (ie: Your company relocates you ). Do your research on the rules governing this policy.
I actually wrote an Excel macro to pull down the HUD properties every day in my target counties, then check the bidding results . I was able to build a years worth of data so that I could analyze the acceptable net % based on list price, number of times reduced and days on market. I figured out what the minimum acceptable NET was to HUD based on these metrics. The problem is that once HUD removed the appraised value from their listings, properties started to sell for prices way beyond profitable levels. I stopped tracking HUDs when it became apparent that it was no longer a viable channel for deals in my area. I still look at them every now and then, but I havent run across anything resembling a good investment in awhile....
Gordon Vaughn well I tried your theory, however I count find this thread a couple weeks ago so I had to wing it. Hahaha.
So this is my scenario, house listed at 52k needs at least 20-30k in remod. Has extensive water damage in basement due to them shutting power off and pulling out sump pump. Had at least a 1" through out basement. Mold every downstairs and so humid started to move upstairs.
For some reason I thought is was 20% of first listing. Of course no sale. I started at 33 then ended up at 38k They came back with a counter of 50. House is trashed terrible condition but in a B neighborhood. I told realtor no forget it. We can wait.
Will have to revisit once they reduce down and see. Thanks for the guidelines.
True, HUD stopped advertising the appraised value on their listings. I do believe though that when the appraised value was advertised, it was always consistent with the original listing price. Then once reductions were made you started seeing the price difference of the new reduced list price just above the appraised value price. Those were the days! Now it's just easier to track the homes of interest and write down any changes from the original listing. The lack of inventory has been the major factor in prices being driven up, both by sellers and by demand. However there seems to be too many people that have jumped on the HUD bandwagon because of how easy it is to submit offers and track progress without the help of a real estate agent, and because they hear that HUD homes are the best deals around. Many of these unrepresented investors are submitting multiple offers on many homes at once due to low inventory and heavy competition, without performing proper due diligence and carefully analyzing values. This usually results in ridiculously high bids that make it almost impossible to land a good deal through HUD. In turn the winning bidders are buying career ending deals they wished they never purchased. Don't get sucked into that vortex! You could easily find yourself in the same regrettable position! Also, be patient and try to utilize other paths to finding great deals.
Thanks for your post Chris. HUD tries to take into account the home's condition and work needed to be performed, but like most home sellers they think their house is worth more than it's actually worth. Revisit the deal like you said, and keep plugging away with the others. If you find several great deals at once, increase your odds of landing one by submitting offers on all of them. Once you've got one you can always pull out of the rest.
You cannot place bids on a HUD home without the use of an agent with an NAID number
FYI- When you begin placing a bid, the original list price comes up which was the original appraised value. For those of us who used an spreadsheet in the past as @Chris Martin indicated preciously, appraised value is not an importable field anymore.
Duh! Never try to write or blog while your kids are screaming & running into walls behind you.
@Gordon Vaughn I appreciate you sharing info and trying to help other investors, but your attitude towards @Greg H. seems rather pompous to be honest. The fact is you're theory is not totally accurate. I've purchased/sold many HUD homes (not nearly as many as Greg), and we have won bids below 90% in the first 30 days. As a matter of fact, I have attached screen shot from our local MLS that shows HUD sales that were on the market 10-30 days (Highlighted DOM in the Header section) and have sold within the last 6 months Nine of those sold BELOW 90%. And for HUD sales that were 31-60 DOM, 8 sold below 85%. Were they close to 85%? Yes, but don't be all "I'm right. You're wrong" if you don't really know the whole story. I am in the same area as you as far as HUD asset managers go. So, let's keep sharing to help others...but leave the "I'm always right" attitude at home. No offense intended. I've also attached a 60+ DOM and as you can see, that's where the real deals are (very last column on all 3 pics show closing price percentage compared to original list).
Hey Tony. I appreciate your comments, I really do. This is what BP is for, to challenge information coming across this site and to ask the important questions as they relate. I don't claim to "always be right", and I certainly wouldn't blog or comment on areas I know nothing about. And to be perfectly honest, it's been a year since I've closed a HUD deal because the Georgia market is extremely scarce, and every time I place a bid for a client some knucklehead comes in $50K-$60K over list price to steal the deal from everyone. Most of my deals these days result from yellow lettering, inside tips on pre-market foreclosures that I can get an early jump on, or fellow agents that send me up n' coming listings that haven't hit the market yet. However, the info I provided in my original blog isn't anything that I discovered on my own. This info was given to me back in 2011, and I used this info which worked for me every time. I spoke to my friend at Pemco again a month ago. She said that there are very few variables that can play out which could prompt small adjustments to this rule, such as small adjustments to meet quarterly rollouts, but she said that this system is still very much at play and hasn't changed since she's been managing Pemco. So, even though I haven't done a HUD deal in a year, I am inclined to believe that what she says has and has always been true at least since 2011. And when you look at the price reductions you can see that the %'s to list price are accurate to the info I provided. Again, this is NOT my discovery. Everyone has their own way of crunching numbers, I get that. And we can nitpick 1%, 2%, & 3% based on our own methods of calculation and what we are individually seeing. But when someone immediately responds to something I've wrote, without questions or verifications, and simply says "you're wrong"; Yeah, that kinda pisses me off. I'm not going through Greg's blogs, or anybody else's blogs, with the purposeful intention of trying to prove people wrong. But I'm sure if I did, I probably could.
I offered 30k over the listing price of a hud home and had the winning bid. Will they let me know the bids below mine?
@Gordon Vaughn I'm in Atlanta like you... I have had zero luck on HUD. Get out bid every single time.
First off I have never "blogged" in my life and I surely do not and have not ever responded without using knowledge and definitely in this case verification by actual bidding. Please check earlier in this thread where I placed an actual bid using your information
With the exception of the bids which fall under the $1250 minimum commission(As that skews the numbers) @Tony Green's spreadsheet backs up my numbers and not yours
I have not used BP for self promotion nor self marketing but to attempt to give back to those that follow. I do hold those that start threads such as "The best Kept Secret" as I do buy HUD homes now and for the last 25 years. I have no problem displaying my HUDhomestore account if you display yours if you seek further proof that I do and have done what I state in any post
Very Interesting Post. Honestly, I have not done too much with HUD deals.
Originally posted by @Christopher B.:
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.
Not to hijack the forum, but in response to your question, we are cash buyers and buy quite a few HUD homes. We write all our offers, cash, no inspections and no contingencies on all bsnk owned properties, unless the properties have Wells and Septics we put contingencies in for those.
This is pretty typical for many rehabbers.
@Dell Schlabach Thank you for your input Dell. Let me know if you're in the market for HUD homes in New York! (wink)
@Lisa Rankin
There's a button at the top right of every thread that you can click to follow a thread. Follow by stealth. Lol.
Thanks great information
Anyone have any information regarding the Midwest?? We have kept our eye on a HUD property that is now past 60 DOM. The possibilities are endless but ARV is variable, which means the deal definitely needs to be done at the right price. Just wondering if anyone has any tips regarding Midwest HUD
Very interesting. I had been hearing they accept 91% of the list price until it hits something around 100 days (maybe less) at which time, all bets are off and they sometimes take very low offers. So what you're saying at least sounds close to right. Although, as others have said, it may very well vary by the state.
Hi Ashley. I would assume at this point that HUD has reduced the price 2X? If so I would have your agent submit an offer between 75%-80% of current list price, then check HUD's response the day after. If there are no other active bids on this home or if you're the highest bid on the table you could see an acceptance, or a counter offer at the very least.