Coweta Fayette Real Estate & Newnan Homes for sale blog by Richard Weisser of Better Homes and Gardens Real Estate Metro Brokers

I do alot of HUD deals here in Michigan. It can and DOES get crazy with the bidding. I prep my clients to be ready to show THEM the money.

Good points. I think sometimes people believe the HUD deal is the cheapest way to go!

Thanks Richard the last two HUD homes I looked at couldn't even fetch list price.  I still believe they are both on the market.

Richard, we have quite a few HUD homes in our area. Good information a potential bidder should keep in mind. Thanks.

Oh so true...I have run into this recently on a HUD offer I made an offer on and won....no where could we find after the fact, that we had to add the repair escrow in to the loan or pay it in cash.   We are now cancelling our offer...as we had bid full price and there is no room ....nor the ability to do another FHA appraisal....we will re-bid it at a lower price....per the HUD rep....and hope that no one else outbids us....we were the only one to bid on the house the first time around!  (fingers are crossed)

I did finally ask the rep from HUD where it talks about this on the website and she admitted (although I am sure she wouldn't own up to it in front of her boss)  that it wasn't clearly outlined on the website.    The Listing agent assured me it was....hmmmm

I thought having done 7-8 of these in my career that I was knowlegable about a HUD offer but apparently i have more to learn!  LOL   I am making it my mission to tell as many as I can about watching out for repair escrows....so they understand the process better!

Richard:  Your knowledge and experience with bidding on HUD properties is great.  I would never have known that you had to come up with any difference over the suggested bid price. 

Hi Richard, your clients are lucky to have your HUD experience. I also didn't know about having to pay the difference. Learned something new today!

Richard - it really pays to go to any classes that are offered on how to sell HUD homes.  I see you are in Georgia, so I guess you are submitting bids through hudpemco.com, the same as here in California.  I think they do a pretty good job of explaining things, but there are SO many rules!  And don't forget to sign the purchase agreement in blue ink!

http://www.hudpemco.com/FAQ.htm#41

Richard,

Another great reason to contact your local Realtor. Some things you find on the internet are not that self-explanatory.

Rich

I've been selling HUD homes for years.  Generally though to cash investors, which takes away any finance issues.  I really liked when offers went directly to HUD years ago and not PEMCO, but alas, we have to adapt.

Richard...there are so many twists and turns in Real Estate in today's market, it is getting where you almost have to specialize.

Good information as it takes a knowledgeable agent to guide folks through the HUD process.

Richard,

It amazes me sometimes that people will hire an agent and then proceed as though they know more than the agent, instead of listening to them.  A knowledgeable agent is worth more than their weight in gold.   and that's a lot.

must come up with the difference in cash.

must come up with the difference in cash.

Sadly, few agents understand this and cause serious problems when attempting to represent a buyer interested in HUD properties.

To "get the HUD key" is the easy part.  To get to settlement is the hard part.

Thanks for the post that is really helpful for me

Richard,

I too now am working full time in HUD homes in Central Fl with Trent Realty....We have 7 counties and the phone rings off the hook. My job would be made much easier if the other agents pushing thier bandit signs all around our listings would stop the misleading advertising....$100 down buys this home...100% financing available..ect.....

I did take the time to learn the HUD process, and the basic rules are laid out in pretty basic language in a PDF document that I am happy to forward with my initial package. The biggest problem we have is that the owner window is so short, and the buyers have not met with a bank or broker to get pre qualified before starting to look around for housing. 

I have begun putting Get Prequalified First  on my signs, and that is at least starting the conversation on the right foot. It would be very helpful for the agents in the business to quit the bullshit shit signs that mislead the public and stick to providing a service to the clients.

HUD homes are an unbelieveable bargain in many cases, and I for one am on a campaign to educate the local public with the REALISTIC PROCESS involved in becoming pre qualifed to buy...including the way to bid, repair escrow, the 3% closing cost misunderstanding, ect...

I will be willing to bet that 80% of these deals go for cash investor buyers, simply because we are not reaching enough individual buyers to have them ready and able to properly pull the trigger.

I just lost a bid on a HUD home because the buyer thought they could steal it......sold to someone else.  They set the prices to sell and usually get what they are worth.

I haven't done a HUD home for a couple of years now, thanks for the reminder !!!!!!!!!!!!

I've seen a number of HUDs go for more than the asking price.  Thanks for bringing up a timely piece of advice.

Richard, I'm working with a few clients interested in HUD properties and when I explained this to them and the realtor they were shocked. Thanks for posting such an excellent explanation for other realtors. 

I started my career in 1989 selling HUDs. Besides the overbidding you mention, there is a mentality in auctions to bid against other people versus paying a fair price for a Repo. I can remeber buyers as well as agents thinking that they won something like a lottery. I also think that the higher commission motivates some agents to get the bid higher. The other issue in 1989 on was that that was the days of $100 down on HUDs. What I saw was many homes coming back as HUD repos again. Realtors have to be VERY responsible here so that we do not further jeopardize not only our market values, but most importantly the future financial health of those who trust us. 

Good post Richard.  Because of our market, HUD homes here typically sell for above list price.  Most are cash purchsers though, so the lending doesn't come into play.  Good tips to know for buyers using financing to purchase a HUD home.  Thanks.

Thanks for the heads up, Richard.  Here on my side of town, bidding on HUD homes is insane & I wonder how many buyers or agents are aware that this is how the process works!?!

HUD must be the topic of the day, I just posted about repair escrows. HUD sales are not for the faint of heart and it definitely pays to have an agent who really knows how they work.

HUD sales aren't as easy as they sound, and not always the bargain people think they are.

HUD sale are tedious and can be tricky if you don't know what you are doing.  Yet another reason to call Realtor who know what HUD sales are like and has done enough to be considered knowledgable in this.

Patricia/Seacoast NH

HUD homes can be great! First off, you either win the bid or you don't. No waiting around for months on end as in short sales. Also, if you don't win straight up, you may be able to save your bid as a backup offer. Many times the winning bidder will default their bid due to the type of issues raised by Richard, inability to get financing, etc.

If you hang in there you've got a good shot at getting a HUD home, esp. for owner occupants.

I would love to do more business with these homes in Palm Beach County. The Buyers still don't have the money and think they can low ball on the price...!

I've stopped working with anyone that calls me and say, 'I want to purchase a home for $50K and I want the Seller to pay 6% of my closing costs & I'll just wait until YOU find it.'

Gosh, I'll find it for myself! Now, if a true investor contacts me and can show me the MONEY, then we can work together.

Good luck to all

I had this come up recently as well.  It was only a $100 difference and the buyer will willing to pay it.  HUD does allow the cost the repair escrow account (based on 110% of the repair costs) to exceed the appraised value by that 110% amount.

In GA, HUD will only contribute 3% toward a buyer's closing costs/pre-paids.  That is crucial to factor in when looking at cash to close.

Hi Richard, A great reminder for those unschooled in the HUD home purchase routine.  The good news is that many who decide to buy a HUD home have been saving down payment money, so if they want to overbid a bit on a home, they will have a little cash to apply.

This is a great point. I have brought it to the attention of my buyers who are going FHA. Sometimes, they don't seem to understand that they can't bid over the asking price without paying out of pocket even though a conventional buyer can as long as a new apraisal is done that supports the price.

Thanks for the post. I'm not working with any HUD buyers right now, but I'll definately keep this post in a file to remind me for when I do. Thanks.

Well written and highly informative Richard. Definitely earning the highly coveted and much sought after Grid's THUMBS UP!

Good that you covered this.  It's difficult for some people to understand.  And the fact that the bids stay open for awhile, quite a few can come in and it can get fierce.

Good information here Richard. Thanks -- I reblogged it.

One by ne my buyers become educated. They want the house for peanuts. Then they think if they appraisal comes in lower the price will be adjusted. With 20 other buyers just waiting in the wings.

Richard - Thank you for a concise report on the HUD bidding process.  It is a difficult arena where some let emotions override rational thought. ~ Doug

HUD homes take some getting used to. Once you get the hang of it you are in a great place to do business. 

Great reminder Richard, what a shock it would be to the buyer if  this happened!

Richard, I have never done a HUD sale and had no idea that the price was based on an appraisal. I would have studied it before getting into a deal with one, but this is a huge heads up!

I wonder how many of those properties fall through when the realization hits that the loan amount is limited...

Hi Richard -- A competent real estate agent is worth far more than the commission received in a transaction.

Good information Richard! Thanks for the post.

This is important information for anyone who is going to be making bids on HUD homes.

Great post, Richard!

I have a client closing tomorrow in a similar HUD property situation. She had been under contract using another mortgage source, and, because the HUD appraised value hadn't been taken into account in negotiating the contract, she would have been cash-short.

We had her cancel, then renegotiate, the contract, and moved towards closing, only to find out on getting that HUD appraisal that the appraised value had been overstated! Instead of the $110,000 we were expecting, it was actually $108,000. Fortunately, this time, the difference was small enough that she had the cash to cover it, but I would recommend to anyone bidding on a HUD home that they review the appraisal before bidding unless they're comfortable covering the difference in cash, as you and Lenn both pointe out.

Thanks,

Dan

Richard, does your HUD bidding process have both the list price and the "as-is value" or a list price only?  Good advice for people in your area.

CHANDA

Our HUD homes seem to go over asking price. Seems the best way for a buyer who doesn't have the cash to bring so they can overbid is for their agent to take less than the full allowable commission. (OH MY GOSH!! DID I SAY THAT OUT LOUD?!?)

Hello Richard,

In California we've had the same issues come up time and again.  In my area of NE Los Angeles County HUD's are not listed in our local MLS, so if an agent wants to go above and beyond for the client they need to know that these listings are available.  In CA the new HUD listings are posted every Friday with an Owner Occupant bid deadline of 1 week later - Sunday at Midnite.

One of the things I learned is that HUD does not always know what can or can't be insured as an FHA.  I had a buyer last year who bid on a great property - a manufactured home on a non-permanent foundation system on 2.5 acres and had his FHA bid accepted at $40,000 the highest of 2 bids.

After 2 months of dealing with HUD (and two paid extensions), their appraiser and the flood zone department of Kern County it was determined that HUD had not done their initial due diligence when giving the original loan and the house could not qualify for FHA, USDA or CONVENTIONAL financing due to the foundation system and flood plain issues.

As a REALTOR I learned alot about due diligence prior to the offer.   Never assume the Listing Agent/HUD knows what they are listing.   

Also in CA there is no interaction between the Listing Agent and Selling Agent - we deal directly with HUD's agent PEMCO.    I have 2 HUD's closing by May 3rd and it looks like I may have finally learned what I'm doing, things this time around are going great.

I appreciate all the great comments in ActiveRain.  Thank you for a great, educational post.

Fortunately where I am at, we are in a transition phase. Many of the old HUD brokers went out of business during the boom because there were no HUD deals being sold.  Now that they are coming back, a lot of the real estate offices either are not registered with HUD or don't know how to bid on them.  We typically go after the ones that the owner occpants have passed over.

If your buyer is an owner occupant, or can pay all cash I agree HUD homes can be a great deal.  But for a conventional loan HUD will not bring the property up to liveable conditions - it is most decidely "as is". Plus their appraisal is not acceptable to most underwriters for a coventional loan, so that is another $450 for a re-appraisal.  We have zero interaction with the listing agency, no input, no appeals...we are on extension #3 due to Escrow taking their sweet time to get paperwork.  But my buyer had to fork over the $375 (extension fee) each time....My buyer had the funds to get the 20% down but is being nickle and dimed to death. 

If your buyer is an owner occupant, or can pay all cash I agree HUD homes can be a great deal.  But for a conventional loan HUD will not bring the property up to liveable conditions - it is most decidely "as is". Plus their appraisal is not acceptable to most underwriters for a coventional loan, so that is another $450 for a re-appraisal.  We have zero interaction with the listing agency, no input, no appeals...we are on extension #3 due to Escrow taking their sweet time to get paperwork.  But my buyer had to fork over the $375 (extension fee) each time....My buyer had the funds to get the 20% down but is being nickle and dimed to death. 

This explains first time buyer frustration with involved with buying home!

Sue, I had a HUD property on which HUD was very slow doing the LBP remediation and we had a couple of extensions, and also a couple due to the lender not getting their stuff together. In all of these cases we asked them to waive the fee and they did. I wonder if it's different depending on where you're located...

You're darn tootin!  Out bidding doesn't necessarily mean you'll get it....but with an experienced and detailed agent they'll get the info they need before wasting time.....

In general this is why many first time buyers are having problems.  FHA buyers cannot bid up the price against cash buyers.

Great information from you Richard and the comments you received.  Thank you!