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!

[Mark Gallagher]

@Gordon Vaughn

That is a common misconception that brokers can see the bids. I believe under previous asset managers that was possible. But currently there is no way for a broker to see bids. Could be 0, could be 100. 

[Gordon Vaughn]

@Mark Gallagher

Come on, it's always "under previous asset managers it was, but isn't anymore". There's no misconception & not all Hud listing contracts are negotiated the same. You're an REO listing broker so naturally you don't want to hear anything that may remotely suggest a biased offering of info to the buyer, & that's cool. But I'm an investor agent & a buyer's agent that doesn't buy the idea that Hud has recently implemented a nationwide no-disclosure policy where listing agents are now kept completely in the dark through the most vital piece of the sales process that HUD once relied on for years. I'm gonna assume you do know & I'll pick your brain, gain your confidence, and you'll tell me what I want to know about the deal 8 out of 10 times. I'm gonna share strategies with the people on this site that will benefit the most from it, & investors want to know how they can compete & gain some much needed leverage in their purchase efforts. Picking up indicators during conversations w/ list agents/sellers and asking the right questions is the art of the deal.  

@Mark Gallagherundefined

[Mark Gallagher]

@Gordon Vaughn

I honestly can't tell what you're trying to say. Are you trying to say I'm making it up and I really know all of the bids being made but come on this website and say that it's not possible? That would be a complete waste of my time, and is not the case. If you have someone in Atlanta that has access to bid amounts, and they disclose those amounts to you, that is not the case for all areas. 

[Greg H.]

Until +-8 years ago, we all knew what the bids were as it was listed on the Asset Manager's website(before Hudhomestore.com each AM had their own website).  Once Hudhomestore came online, all bids were no longer available for viewing.  For the next few years, you could tell the number of bids placed by the last 2 digits of the confirmation number.  That stopped +-4 years ago

@Gordon Vaughn you have indicated in this thread that your information is a few years old but you know that it still applies today. HUD "secrets" change often including another one in the last couple of months to include a softening of the firm line on the 87-88% on aged inventory that had been in effect since HUD went to one AM(there doesnt seem to be a firm number in my region but their is a number less than 87%)

The "under previous asset managers it was, but isn't anymore" ABSOLUTELY APPLIES.  I have corresponded with several listing brokers on and off BP and all indicate that they have NO knowledge of bids or bid amounts.  My research all points to this being the case:

- Bids below 87% are not immediately accepted.  The lower bids are manually reviewed at some point(No clear pattern but I could explain the previous pattern if need be) and are often accepted days of weeks later.  IF the Listing Broker knew the bids amounts, why would they not inform their investors of a low bid and have them go $1 more ?  While Listing Brokers do get a higher number of bids awarded(They have a sign in the yard so this is to be expected) my research indicated they do not get a higher percentage of the manually accepted bids.  This seems to indicate they have no knowledge of the bids or number.  Logic would say that the Listing Broker would dominate the manually accepted bids as they would have the knowledge to bid $1 more

-When listing agent contact me with their courtesy call, the most often response is 'I had no idea HUD would sell it for that price" Again, seems contrary to your information

-Gordan, you also stated the not all listing contracts are negotiated the same. I have no direct knowledge one way or another but that would seem contrary to the way HUD along with Sage operate: One Contract for everyone and one commission structure 3% with a $1000 minimum. The bid system is the same for everyone

I did a small sampling a while back in a couple of states and I was able to see many of the same patterns.  If fact, many states are much easier to track than Texas as we are a non disclosure state

[Gordon Vaughn]

@Mark Gallagher - No, that's not what I'm saying and yes, I agree that would be a total waste of time. I did not want to question your honesty. If you say that you don't have an inside track or access to bids that aren't your own, there's no reason for me not to believe you. But I get indicators and tips all the time! Come on! Agents tell me a lot of things without directly telling me a lot of things, what? They don't tell me bid amounts & I never ask for them, that's breaking the rules. A previous write up in this chain was from someone speaking to a Hud listing agent whom suggested he would need to be at a particular price point if his offer were to be considered. Perhaps it's different in many areas of the country, but the people here running Sage are the same people that ran Pemco & there's been no difference in the information I've been able to obtain over the past 12 months from the last 7 years. I don't mind being challenged & have conceded a few times to the knowledge of my good bud Greg H, but you said essentially that brokers having knowledge of Hud bids or being able to see bids is a common misconception, and I say that's no misconception. Degree of info & area specific? Perhaps, but if you're going to challenge one of my write ups as contrary to fact or misconceived I'm gonna call you out on it. I've been doing this for way too long & I know how this game works - I've played on both sides for years. I recommend that bidders should always approach any skillful & responsible conversation with the assumption that listing agents know what the buyer needs to know, and more times than not they do. Yes, even with Hud homes.

@Greg H - You've got the current Hud bidding experience and much of your write up is inarguable. However I disagree on a few things:

- Yes, certain things have changed but the majority hasn't changed. Sure, "under previous management it was but isn't anymore" applies in several instances within this chain I agree. But not in context with the majority of arguments & suggestions I've made. As much as we've disagreed, we haven't ever been too far apart.     

- The reason why listing brokers would not inform their investors and buyers of current offers and bid amounts is b/c it would most likely be a violation of their state or state board's fair practice laws & would constitute an extreme conflict of interest and possible breach of listing contract, if a listing broker tried to corner deals and not provide equal competition for all bidders. My advice to buyers was to try and engage a listing agent and ask questions that might gain insight and leverage, b/c the list agent most likely knows a lot more than you think. Certainly a lot more than they would ever gladly admit or reveal. 

- Yes, HUD has certain requirements that all listing agents must adhere to, but some list agents negotiate different assurances of turn around times, REO services provided that can offset marketing and vendor costs, streamlined process through HUD's approved closing attorney's, etc. The buying process is the same for all buyers & yes, there may be certain items in a listing contract that are non-negotiable across the board. But the agreements made between listing agents, Sage, and Hud are not all tailored the same believe me.

[Kevin Hunter]

@Greg H., @Gordon Vaughn, thank you for a great thread. You have both put an awful lot of time into trying to teach folks on this site and I, for one, really do appreciate it. I have learned a bunch just from this thread. I am watching a HUD deal closely right now and getting close to making an offer. Although only one deal, I will push out what I get back afterward.

Thanks again!

[Gordon Vaughn]

Thanks for your kind message @Kevin Hunter. Glad to be able to provide some useful information to the community. Good luck with your HUD deal!

[Greg H.]

Originally posted by @Account Closed:

HUD is just like the rest of real estate: it's an insider's game. What's considered smart business in RE is called insider trading on Wall Street. If you are an agent investor or your brother is the agent, you're going to get the very best deals before Joe Shmo ever sees them. That's true of the MLS, HUD, and everything else. If you don't know anyone, you need to get very creative or settle for mediocre deals until you do. That's simply the nature of the beast.

Sorry you do not seem to be finding any deals. But, you are incorrect about HUD properties. There is nothing rigged about the system as :

Listing Agent or anyone in the brokerage or their families may not purchase HUD homes

HUD makes the property available to Owner Occupants first before investors

All bids are placed online and do not go through the listing agent

Listing Agent has no idea of the number of bids or the amount of the bid until one is accepted

Cash or financed does not matter at all.  Your net bid is $1 more you win.  No highest and best

[Greg H.]

@Account Closed

Lol. Your right. I guess I just been lucky 350 times or so in purchasing HUD homes

Seriously,  if you are looking to purchase feel free to reach out as I am a Broker as well

[Greg H.]

Originally posted by @Account Closed:

So you have purchased 350 homes and you're a broker--and you're defending the status quo.  Why is that not exactly shocking?  I'm sure you think the system is great.  No one doubts that.  It's a little different for the rest of us that are stuck with the stuff you didn't want when you saw it as a coming soon before we ever knew it existed.

Actually, 95%+ of my HUD purchases are properties that have been on the market for 60+ days. So, everyone else had the same chance to purchase the property during that time

Whether I think the system is great or not, I found a way to succeed within the system.  When the system changes, I will find a way to succeed within that system as well.  Sitting back and complaining just isn't an option for me.  Good luck!

[Greg H.]

@Account Closed

So it appears your on BP today looking for some avenues to buy properties and info on tax sales. You have had at least 2 people off to help you and you have insulted them both. How is that helping to reach your goals ?

[Cindy Berner]

I just want to be sure I understand that investors cannot bid on HUD properties until they become open to all bidders, correct? I've all but given up on HUD as a viable source as I'm not an owner occupant.

[Jay Hinrichs]

@Greg H.@Account Closed   Greg  Jim is not a happy camper with the real estate industry as a whole he has put up a post on what he believes are the steps to reform the industry..  much of the insider trading is simple paranoia ... 

I do know that in most industries the top producers or users or buyers do get some perks.

Its in all industries.. think about the airlines.. I have not flown coach in 20 years I am top tier in points etc and get free upgrades 99% of the time.. other times i just pay for the seat... 

I am in Hawaii now and I am top teir with hilton I got upgraded to a suite for free... 

I am VIP on Auction .com  because of my teams out in america that I fund.. we have a dedicated line and account rep... Jim could be a vip as well .. just needs to close on 3 to 5 deals a month .. and he will have the same percs as me..

are there ethic violations and bad Agents for sure.. are they the norm NO WAY. and fooling with HUD would be a federal offense.. not worth the orange jumpsuit

[Jay Hinrichs]

@Account Closed  who has stated 350 of them.. 

so I would tend to listen to the guys that are doing it real time today... 

and when I say Mark has done 1000 of them that is acting as his capacity as a broker. and I know for a fact he would not and has not participated in self dealing he would lose his HUD contract and be in other hot water.. watch the movie 99 homes to see what happens when you screw with HUD.

[Mark Gallagher]

@Account Closed

If you're so certain of "insider trading", you should consider getting on the inside to see all the crazy sleezy things us agents do! It's like Scarface with Realtors!

Jokes aside, believe it or not, most people have a moral compass and ethics. Having done over 1100 transactions, I've been in one mediation session and it had nothing to do with ethics.

I post rebuttals to posts like these quite frequently and people seemingly don't want to hear it. Unless an agent is a moron, they're not going to be unethical on one or a handful of deals and jeopardize the other 1,000. 

[John S.]

@Gordon Vaughn @Greg H. Have you guys bid on ocwen lists?  Do they have a similar reduction structure to get an acceptance?

I'm wondering if its been reduced a 3rd time if the price goes down 20%. 

[Ronda R.]

There are two hud homes that I have been watching and waiting for exclusive period to be over. Realtor told me it ended on the 21st and first time we could offer would be 22nd. On the 21st they all of a sudden "were off market". I am wondering if my realtor was a day off and another investor beat me to them or if they will take off market when they are sold instead of going "contingent" or "under contract". Is it possible to put an offer in as an investor early and have it pending?
This is a new realtor that I am working with and I am wondering if he dropped the ball because he just wasn't interested. He won't even walk into these houses.

[Greg H.]

@Ronda R.

Two possibilities:

Either an owner occupant bid was acceptable at the end of the exclusive period(most likely) or your agent was off by a day.  Once a bid is accepted, it will disappear from the HUDhomestore.com site.  Often you can check the bid results tab after a few days and see the amount of the accepted bid.  

[Greg H.]

@John S.

I have bought a few over the years, but have never detected a pattern in their system as there appears to be much more Asset Manager/Agent interaction with the Ocwen process

[Ronda R.]

@Mark Gallagher do you only have the ability to buy Pennsylvania homes or can you help me with Ohio homes? I need someone that knows hud in Ohio. I know a lot of agents don't want to take the time to work with hud buyers. My current agent is suppose to be an expert at auction.com homes. Not sure about that. I am finding it challenging to find a good agent that wants to work with the lower cost homes. I have yet to buy a hud home. The ones I have been watching get gobbled up before the exclusive period is over. The last two, as stated above, went "off market" the last day of the exclusive period.

[Bret Blackburn]

Thanks for posting. The info and replies are very beneficial

[Mark Gallagher]

@Ronda R.

I'm sorry, I do not work in Ohio. If you find the listing agent within hudhomestore.com, I would contact them. 

[Tim Debronsky]

@Ronda R. Where in Ohio are you looking to buy HUD properties. I'm an investor/agent in the Cleveland market. I can help you if you are looking to buy in Northeast Ohio.

[Ronda R.]

@Tim Debronsky I have been buying in Akron. 

[Tim Debronsky]

@Ronda R. I'm actually getting ready to list one in Akron in Sherman St.  I know another big buy & hold investor in Akron who is selling some of his portfolio too.  Let me know what you are looking for.

Thanks,

Tim Debronsky