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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!
You have over 25 MLS systems in Texas?? Wow!
The HUD-1 on my deal from a few weeks ago shows 3% commission to the listing broker.
I believe you can still play with the buyers agent commission to make your net offer better (hint).
@Greg H. Can I send you something off-market in Dallas Texas
Thanks for the info Greg H! I have a quick question: in your hypothetical, the closing cost is 3k, is that a typical flat fee or is that 3% of the properties value?
HUD will pay up to 3% of the bid price in allowable closing costs for the purchaser. Keep in mind , this also reduces the net to HUD by 3% as well. You are not required to take the closing costs as it is a fillable field on the bid sheet
The numbers for Hud houses don't seem to calculate for me. I was taught to buy properties at 70% ARV - repairs. The lowest I read mentioned was 70%. These are tight margins. Anyone care to chime in on expected profit and which lender agreed to these margins?
BP community, what course of action do you advise if the list price of the HUD home is extremely low. a situation in which you feel you need to bid ABOVE the list price, maybe by 20-30k. An example, 3/1 sfh turn-key home may be worth around 115k but HUD has listed at 60k and still in the "exclusive" period. Thanks
so I have a HUD deal going on now, would like to know if anyone ever has seen a seller(HUD) credit other than the CC, because we made an above full price offer only to find out that the property has been vandalized, plumbing and electrical removed from under the house, hence we could not do our HI, we had to change our financing to 203b with repair escrow and were told they would not reduce the sales price but give the buyer a seller credit. Our contract was accepted on 10/24/2016 and we have one extension in place, however still no word on the seller credit or if the field service manager has gone to inspect the property, in the meantime we have gotten two estimates for the repairs form a plumber and an electrician, but now our lender is giving us trouble due to an overlay and we have to change lenders and move to an 203K, is this ever going to end?? Any thought from any of you or any contacts at sage I should be calling? HELP
The policy has been only to give a credit a closing for damages that happened AFTER the contract has been executed by HUD. So unless you can prove the damages happened after 10/24(if that was the executed date) that any repairs needed are at your expense. What did the property condition report(PCR) state regarding the items ?
The FSM inspects the property twice a month. Switching to 203K would probably delay closing a couple of months and HUD would not permit an extension of that length. My advice would be to terminate and being an owner occupant you should receive tour earnest money back. You can always rebid when the property comes back on the market
Property condition report said that everything was testes ok and in working order other than the HVAC, which are 2 brand new units and have to be started up by the installing company so we would not loose the warranty. We proceeded to have the power turned on for our de-winterization and the plumber on hand for this and thats when we saw the dilemma under the house, copper plumbing gone, electrical wiring gone. Its a big mess. None of this was disclosed on the condition report our offer was based on ecerything working as disclosed.
Well the FSM must just do a walk through, did not crawl underneath the house to check under the insulation for plumbing pipes etc. and now we are waiting since Nov. 10th for the FSM to go back out and assess the damage for a possible credit.
Originally posted by @Gabriela Patterson:
Well the FSM must just do a walk through, did not crawl underneath the house to check under the insulation for plumbing pipes etc. and now we are waiting since Nov. 10th for the FSM to go back out and assess the damage for a possible credit.
Pressure test would fail if pipes were missing. The answer is to bail out like Greg said.
Gabriela - Greg & Chris are both dead on. Repair costs & credits aside, 203K is a more costly loan that will cut into your equity. Plus you'll incur more costs when you roll out of 203K into a conventional loan. If you pull out now then resubmit another offer as Greg stated, you'll probably get a much better deal out of it.
Are hud deals any good? I see them listed but not always great
Originally posted by @Taye N.:
Are hud deals any good? I see them listed but not always great
A HUD property should evaluated the same as any other deal. The numbers either work or they don't . Typically there are several hundred HUD homes available in Texas and I am bidding only on a handful
James - make sure you have as accurate an assessment of full market value or ARV as you can, to make sure you're not overbidding based on your exit strategy. If the numbers still look great with an overbid, you're probably not the only investor that will feel the same. If this house is highly marketable and in a hot market area, be aggressive.
Jeremy - the ARV of a home is it's estimated full market value once it's renovated & updated. The percentages mentioned in this chain are based on HUD's list price to buyer's offer price. You can submit an offer at Hud's full list price, and that offer can still be lower than 70% of the home's ARV or full market value. I hope that helps.
@Gordon Vaughn, as I expected, I did not win the bid at the close of the exclusive period and I bid 29k over HUD list price. I was comfortable with my bid, knowing that it was very conservative in relation to current property condition and comps. Our guess (realtor friend and myself) is that the property went for close to retail, but at that point, for myself or fellow investor, you are leaving equity on the table. I doubt it is the norm for HUD to list properties at such an undervalued amount. Thanks for your insite Gordon.
I believe this is the case in AL?
@Will C. - Sorry it didn't work out for you this time. Keep researching & submitting offers, and timing will be on your side very soon. Good luck!
In Charlotte, the local HUD office offers free training and they openly share "the formula".
I went to my first training session there back in 2000
and "the formula" is still the same 16 years later.
Here, tho one caveat has been... an owner-occupied bid beats an investor bid, which always seemed to be a noble call to me.
The Formula that we are talking about has changed at least 6 times that I can think of since 2000. The owner occupant preference is obvious during the exclusive period where investor bids are not excepted. During the extended period, the OO only prevails in case of a tie which in the era of net bids being submitted down to the $1 is very rare.
A good tip is to always add a couple of dollars when you are trying to use a minimum number such as 87% to avoid losing by a dollar or two. Of course these days , HUD does not publish all of the bids(they stopped 8 or so yrs ago) so you will not actually know if that extra couple of dollars make the difference
I did state a couple of months ago that I was not seeing bids being accepted below the 87% of current list price. There have been some changes with that as I have won a few bids below that threshold on 60+ day inventory properties. This is not an absolute formula at this time but Sage has been accepting some manually reviewed bids but with no clear pattern
HUD has continued to move some of their older inventory to Hudson and Marshall Auctioneers. I did win a property through their auction but I did feel that I was bidding against myself to up the bid closer to the previous list price
Great information in this thread!
Are these "formulas" location specific? I am looking at a HUD house in NorCal. It has been on the market for about 130 days. Apparently it was a few times in escrow, but fell through because of "agent errors" like being too late with signatures or so. They just now reduced the price the first time by 5%. I talked to the seller agent and she told me that I would have absolutely no chances with an offer more than $2k or $3k below listing price. Is she right with that? Looks like those formulas do not apply in California...
Interesting. I've never heard of Hud reducing a list price by 5%. Their standards of practice are pretty much the same nationwide, but from what I'm learning there are some minor differences in various regions of the US. Since California is arguably the most judicially bound foreclosure state in the nation it makes sense that any departures of current HUD policies would originate in Cali.
Greg - ever seen this situation before?
In regards to what the listing agent told you, she has the inside track on all the bids that have been submitted on the property thus far and is most likely giving you the type of advice that most agents wouldn't bother trying to obtain for their clients. She just gave you a big time heads-up, & by defining your chances by $2K-$3K she very well could have let you know exactly where you needed to be. Remember this: Any time you engage a seller in a conversation regarding a listing you're interested in bidding on, always pay careful attention to the things they say. Learn to distinguish when they say something literally and when they give you hints where you'll need to "read between the lines". What they reveal to you will always provide you with leverage in your negotiation.
Since Sage took over 6 months or so ago, we are no longer seeing scheduled reductions or intervals in pricing. Our research has shown anything from 20+% reductions after 30 days as well as no reductions for 90 days. There just is not a set pattern at this time
The listing agent has no idea how many bids have been placed or at what amounts except in the case of bids they placed
Additionally, I am not seeing any bids immediately accepted below the 87%-89% threshold. At some point, there are now some bids being manually reviewed and accepted below that threshold but it could be a few days or weeks later . I do not have a firm grip as to what the % is but I have had 3 accepted in this manner in the last 45 days
Good deal, thanks Greg. However, gotta disagree with you on the selling agent not knowing the offers and amounts. Southern REO here in Atlanta has full managerial platform access to all bids submitted on their own Hud listings - seen them many times with my own eyes. Maybe not every listing agency has that access, but the company I used to work for certainly did.