Posted by Dave T on April 23, 2007 at 17:02:26:
So what is the fee? And does the broker get paid per listing, or per sale?
HUD bid - Posted by J McDermott
Posted by J McDermott on April 19, 2007 at 12:38:07:
Does anyone know the lowest acceptable bid, as a percentage of price, that HUD will take for one of its properties?
Re: HUD bid - Posted by Dave T
Posted by Dave T on April 19, 2007 at 22:07:42:
I have purchased ten HUD properties over the last 15 years, so I only have limited experience. My last HUD purchase was in 2003, so the rules I followed may have changed since then.
As I remember the system, HUD’s minimum acceptable net was 89% of list for owner occupant buyers and about 87% for investors. Note that the NET to HUD is what is left after HUD pays selling commissions, loan discount points if using FHA financing, and any closing cost assistance requested in the bid.
If you are bidding as an investor. then you will need your own financing since you are not eligible for FHA financing. To make your bid as low as possible, don’t ask for any closing cost assistance. Now, you only have to figure out how much you can bid and still be above the minimum net acceptable price after HUD pays the real estate commission.
First calculate the minimum acceptable net. If the list price is $100K, then the minimum acceptable net to HUD is $87K for a bid submitted by an investor. Next, factor in a 6% sales commission to determine the bid that will still result in the minimum net acceptable to HUD. If 6% of your bid price is the sales commission, then 94% of your bid has to equal or exceed our minimum acceptable net of $87K. Divide $87K by 94% to get $92553.
This is the least amount you can bid to still meet HUD’s minimum net acceptable price. Note that this number is 92.553% of the list price. Just to be a little cautious, I would round my bid up to 92.6% of the list price.
Remember that this is a competitive sealed bid process. You don’t know what everyone else is bidding, nor do you know if anyone else is bidding. Furthermore, you don’t know why anyone else is bidding. In recent years, I have noticed owner occupant buyers paying higher than list price.
I suggest you just figure out the maximum amount you can afford to pay and still make an acceptable profit with your exit strategy, or, an acceptable cash flow if you plan to hold as a rental. Make that amount your bid.
The formulas I gave you worked a few years ago when the HUD foreclosure market was not quite as competitive as it is today. In a couple of years, I expect HUD will be inundated with foreclosure properties and will be a lot more flexible in their minimum acceptable net criteria.
Each HUD regional market sets their own net acceptable bid standard, often influenced by the local housing market and the number of HUD properties in inventory. This past November, HUD was accepting net bids as low as 80% of list in a NC market I was interested in. In 1997, I got a HUD in MD at 77% of net so I know that the formula I gave you is not always a hard and fast rule.
My experience - Posted by Jimmy
Posted by Jimmy on April 19, 2007 at 16:15:16:
I’ve bid on about 20 hud properties, and only got 1. here is my understanding of how it works:
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for about a week after the property lists, only would-be owner occupants can bid. if no OO bids the ask, they open it up to all investors for another wek or so.
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if no one bites, they lower the price by a calculated ratchet (like 5%), and start the process all over.
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I have made bids below the ask in the first round, and had them rejected.
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After 2 or 3 rounds, they loosen up. The one property I got was a 4-plex. it started at 39K, and after about 5 rounds, it was still sitting there. The current ask was 29. I offered 23 and they snatched it up.
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I think they have some discretion, but don’t usually exercise it in the early rounds.
Re: HUD bid - Posted by arlanj
Posted by arlanj on April 19, 2007 at 16:11:43:
My experience is Net to HUD 90% of the listed value.
What we have been doing is Listed value x 90% + 625 for the realtor fee.
That is the offer and it will get accepted.
Now, if a bunch of investors keep bidding low, they will lower the listing by 10%. Then they will accept 90% of the new listed value. But it has to go back to owner occu. bidding.
Re: HUD bid - Posted by Max-va
Posted by Max-va on April 19, 2007 at 12:48:21:
It is their policy to take the bid that nets them the highest amount, after seller paid closing costs and commissions. Things like length of time listed, the number of properties they have in the area, all have a part to pay on what they will accept if they only get your bid
Re: HUD bid - Posted by J McDermott
Posted by J McDermott on April 19, 2007 at 12:40:27:
Sorry, as a percentage of the listed price!
Re: HUD bid - Posted by george
Posted by george on April 20, 2007 at 01:26:52:
Pretty close, Dave. One thing, tho. In your example, you used a 6% commission. HUD only allows a max of 5% nowadays.
However, most investors will negotiate a deal with a HUD approved broker for a lesser amount or flat fee. In my case, I have a key and inspect the properties myself. My broker only handles the bid paperwork. For this we have agreed on a flat $1,000 fee.
So my minimum on a $100k listed house would be $88k. The low commission makes me much more competitive.
Today the bidding process is handled entirely by computer. Bid one dollar too low and the bid is unqualified. Only after the second price reduction does a human hand get involved in the decision process. Also the bidding price is now standardized throughout the US.
Hope this clarifies. I do several HUDs a year. It’s usually hard to find a decent property at a great bargain with so many newbies overbidding. But occasionally one does slip through the cracks for a great buy.
george
Re: HUD bid - Posted by Dave T
Posted by Dave T on April 23, 2007 at 02:30:33:
Yes, the maximum commission to the selling agent is 5%. The maximum commission to the broad listing broker is 1%. So if both the listing broker and the selling agent get a full commission, the total is 6%.
Broad listing brokers also bid on the exclusive right to list HUD properties in their market area. The winning broker may have bid down his fee to something less than 1%.
Re: HUD bid - Posted by george
Posted by george on April 23, 2007 at 12:45:37:
Close again, Dave. I can see you have experience and understand the system, only not recently.
The broad based broker is no longer compensated thru the buyer’s bid. He is taken care of internally with a standard fee. So today this doesn’t figure into the bid the way it did a couple of years ago.
george
Re: HUD bid - Posted by Dave T
Posted by Dave T on April 23, 2007 at 17:06:13:
george,
Here is an exerpt from the FAQ on HUD’s website.
- Q. Is it true that I can no longer earn 6% in sales commissions?
A. HUD will pay up to 5% if you are the successful selling broker and not the listing broker. Up to 1% is paid to the listing broker.