HUD Homes Asset Managers?

Question

When you are looking to wholesale an REO property, you first look at listings on MLS. Once you have found one and submitted a low ball offer that hopefully gets accepted, and you have an option period. If the option period expires and you were unable to find a end buyer for the property you just burned the relationship with that specific asset manager/reo agent. In the future, they are less likely to accept your offers or reject them outright

With a HUD home, to my knowledge there is not a traditional asset manager. When a property goes open bid, I know an asset manager collects the bids, but beyond that I am not certain. If you get the HUD under option, and you fail to find an end buyer, are you going to burn a relationship with a HUD asset manager somewhere out there, who will be less likely to accept future offers? Or is HUD blind to houses that go under option and are not sold.

Thanks for the clarification everyone

Andy Chu · Answer

To answer the question is that all offers are presented in a digital format. The listing agents have no control of which offers are going to be accepted. Regardless of how bad of a business practice it is to use the due dilligence period as an "OPTION" period, you can do it without fear of being black listed.

Tom C. · Answer

Townsend,

I was mistaken regarding options... you may have noted my hesitation on in that regard.   An option expiring would not result in a commission as the client did not fail to perform under the contract (as no performance is required from a holder of an option).  My comment was primarily regarding failure to close a transaction (HUD or other).  I was also clear that this was when you have an agreement with an agent.   If you have such agreements in place, as promulgated in the State of Texas, a broker or agent has the right to their commission in certain situations (even without a transaction closing).

Having said that (and as I said in my earlier comment), I would think it odd for an agent to often pursue clients in this manner as the client is likely still on the hunt for a property and the agent likely prefers to keep the client happy and have potential on the next deal while avoiding the courts.   As such, your ignorance of the contract you are signing likely hasn't changed your response to the

To further clarify, in Texas, agents use a standard TREC promulgated agreement to contract to represent buyers.   It is called "RESIDENTIAL BUYER/TENANT REPRESENTATION AGREEMENT."   Under Section 1 "BROKER'S FEES," paragraph C you will note the conditions under which your commission is "earned and payable."

Although based on your comments, I would encourage you to read the contract again, I was referencing the language "A person is not obligated to pay Broker a commission until such time as Broker’s commission is earned and payable."   It continues to state that the commission is earned when ... (1) client enters into a contract to buy in the market area or (2) at client breach of broker's agreement.   A contract is "payable" (1) at closing, (2) at client's breach of the contract to buy or (3) Client breach of broker's agreement.

As you can see from this language that legally, the commission becomes earned when a contract to buy is signed by both parties and become payable when the client does not perform under the contract to buy.  So if you don't "close an excecuted HUD contract" you are legally obligated to pay your broker out of pocket presuming (as noted in my comment) that you signed the boilerplay buyer rep agreement.

Steve Babiak · Answer

From a session I had with a local HUD listing agent, I agree with Andy  Chu.  The listing agent has no idea who has made an offer, since it was done online.  They will get notified of accepted offers, but keep in mind that the listing agent is not doing anything to get an offer accepted or rejected - that all happens with some asset manager who probably couldn't care who has backed out before.

Townsend Derick · Answer

Tom,

That is incorrect. I have sold many HUD's. If the deal doesn’t close then I don’t get paid cut and dry. This goes for Residential or REO properties. And as a Buyer’s Agent you don’t get paid from your client you get paid from the seller and the seller cant pay me until a deal closes.

Tom C. · Answer

Also, depending on the state, you don't need to close to owe your Realtor their commission.  In Texas,  if you engage a Realtor and sign a contract their commission is earned upon signing (I believe this goes for options too).  If you subsequently back out, they can come after you for their commission.  Not sure how many would actually do that if they think there is potential for future fees with you as a client.  So don't just think your "option" gets you a "do-over" with your Realtor.  Make sure you know when your Agent gets paid... as it isn't always at closing...

Mark Yuschak · Answer

Andy  Chu and Steve Babiak are spot on.  The listing agent does not get any information about submitted bids until one bid is accepted.  Then, the listing agent does nothing more than mark it Pending in the MLS.  They have no control or influence over what bids are accepted.

A couple years ago when REOs were more prevalent to shady practices, I used to highly prefer buying HUDs for this exact reason.  There is a lot less room for games to be played when it's blind bidding and the bids going directly to the AM.

Jon Holdman · Answer

If you get an accepted contract on a HUD property, YOU (whatever name is on the offer) have to close or you lose your EM. No options. No assignments. No changing the contract. No inspection.

You're not going to get any option on any REO. An inspection period yes. Typically 10 calendar days. You're unlikely to get any lowball offers accepted, either.

Kim Knox · Answer

HUD deals with specific Agents in particular areas, the Listing Agent will remember who wastes their time.  Think about it, once the transaction fails, their marketing has to start all the way back to Stage 1.

An asset manager is definitely on the other end of the transaction from cradle to grave, but I don't expect the would commit your name to memory.  The local Agents, who only get paid when successful, certainly will.

If you are using your inspection period as a time to locate an end purchaser, YOUR agent might hesitate to continue with you.

J Scott · Answer

I've never heard of an REO property that will give an option period.  Are you talking about an inspection period or due diligence period?  That is very different than an option period, but can also be used as an opportunity to back out of a deal.

With HUD, other than the 48 hours that you have to turn in the paperwork, there is never an inspection period for investor offers.  If you don't close for whatever reason, ou lose your earnest money.

That said, I don't know how HUD responds to investor buyers who don't close on their contracts.

HUD Homes Asset Managers?

Most Popular Reply