Previous Articles in this series:
Buying a HUD Home Part 1: How I Acquired 4 Homes in Under 2 Years
On to Buying a HUD Home Part 2: How I Acquired 4 Homes in Under 2 Years:
1. Knowing the HUD Listing System
You must understand that, like most government systems, there is no emotion or logic to the process. HUD has a process for buying a home, and you will not change it. The key advantage for the investor is, HUD doesn’t care about how nice the house looks, or what memories were made there, or any other bologna that most retail sellers use to not sell their house for the price we need to buy it for.
On that note, we understand that it is only a matter of time and market conditions for buying a HUD home at the right price. HUD is systematic in its approach, and uses a timeline for each and every listing:
- Initial Offer Period: Typically 10 days, with preference given to owner occupants, with the asking price equal to the appraised value.
- Day 11-30: Offers open to all bidders, with the bid period ending daily at 11:59 PM.
- After 30 days: HUD re-evaluates the asking price, often reducing it.
- Day 31-35: Typically another offer period with preference given to owner occupants.
- Day 36-60: Offers open to all bidders, with the bid period ending daily at 11:59 PM.
- After 60 days: Another evaluation of the price, and often another price reduction.
- Day 61-65: Typically another offer period with preference given to owner occupants.
- The cycle repeats, until the property is sold.
2. Timing Your Offer
Now that you know the system, it is all a matter of timing your offer. If possible, submit your offer as an owner occupant, as HUD gives preference to owner occupants (it is their primary goal – to help people, especially first time home buyers, acquire their home). Be aware that submitting a bid as an owner occupant commits you to living in the house for at least 12 months, and that you cannot buy another HUD home as an owner occupant for 24 months.
My experience has taught me that at the 60 day mark, HUD is most likely to accept an offer that is anywhere within reason. The home I own and currently live in I purchased for $40,000, with a seller concession of 3% towards closing costs. HUD originally listed the home for $70,000, and my market research indicates accuracy in that number, and I would list it today for around $75,000, if I wanted to sell.
So what I will try to do, is evaluate my offer for buying the HUD home, and submit it during the 31-35 day offer period, or the 61-65 day offer period, as an owner occupant, for much less than HUD is asking for the home.
You may check HUD’s current home listings at bidselect.com.
3. Don’t Worry About the Paperwork
HUD displays the results of the offer period on the next business day after the offer period ends. These results are displayed on HUD’s website, and the paperwork begins. This is where a good realtor comes in handy. I normally hire the appraiser and surveyor myself, but if you are just beginning, I recommend that you call you realtor about 2-3 times a week during the document and closing stage of the property, as they will be able to dot the i’s and t’s for you.
Be sure, sure, sure that the appraiser and surveyor are hired right away, and begin work ASAP, as it can take as little as a few days to weeks for the appraisal and survey to be completed. These documents are vital in almost every real estate transaction, unless you are buying with cash. Just keep pounding on your realtor, and make them earn the high commission they are being paid (HUD pays 5% to the realtor that brings them a buyer).
Hint: In some HUD home buying offers (before I became a realtor), I have asked the realtor to reduce the commission to make my offer more attractive to HUD. HUD cares about the bottom line, not your offer price.