HUD bids -- worth it if overpriced - Posted by Ken

Real Estate Investing
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Posted by Ken on February 03, 2002 at 08:25:03:

That’s about the conclusion I was coming to.
Why go with: sales price + improvements = market value"
Seems I should look for: “sales price + improv. + sweat equity= market value”
In other words, I want something for the hassle of rehabbing.

To show how far off I consider the hud price, another occupied house just came on the market relatively close. 4br/1.5 bath, with basement, trees, and much nicer neighborhood, not on major highway, $84,000.

Just can’t see how HUD came up with “as is” appraisal of $80K+ when it’s uninhabitable.

I’m obviously spending way too much time on this, think I’ll keep an eye on it and see if they become reasonable as they did with you $6K deal.

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HUD bids – worth it if overpriced - Posted by Ken

Posted by Ken on February 02, 2002 at 22:50:27:

Here’s the situation:

single family home, no operating heat, down to subflooring, needs some bath and kitchen (in other words, unihabitable) work. Listing shows minor exterior repair required for escrow, doesn’t mention other major flaws.

Priced at $66,000 “reduced”, appraised “as is” according to HUD just over $80,000, really worth as is around $40,000. The $40K figure is based on the need to add HVAC, floors, tub, sink, cabinets, paint, yada, yada, yada…In other words, it’s structurally sound as far as the shell goes, but after that it’s a mess.

So, the question is, do we let this one go, or can I bid in the low 40s with an explanation of why the bid is so low? Th rent in the area for comp houses (with 3/1 heat/ac) runs over $700/mo. The true market value of the home, fixed up, would be about 75,000, as best as I can tell.

comments appreciated.
Thanks,

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A little inside info on HUDs - Posted by Rob FL

Posted by Rob FL on February 03, 2002 at 17:20:37:

The “as is” value that is orignally set on the first go around is a value determined by an appraiser hired by HUD. All HUDs get appraised. The value they put on it has nothing to do with assessed value, the prior loan balance, a 3-year old appraisal, etc. The value is determined by a recent appraisal of the property that is made after HUD acquires it. Whether the appraisal is accurate or not, you be the judge. Houses marked IN for Insured or IE for insured with escrow have less than $5000 in HUD-required repairs in order to pass an FHA inspection. Houses marked UI for Uninsured either will never pass an FHA inspection under current guidelines or require more than $5000 in HUD-required repairs.

As for discounts, I can’t tell you if this is true nationwide, but I can speak for Florida. Back before HUD hired property managers about 3 years ago, I spoke with a director at my local HUD office in Orlando and was told that the minimum acceptable bid was a Net to HUD of 87% of asking price for investors and 89% for owner-occupants. Anything below that is automatically rejected.

When they switched to property managers back in 1999, I called up Southeast Alliance in Atlanta and asked them the same question and got the exact same numbers. I’ve also reviewed the posted bid statistics in detail many times and those numbers appear to be right on target.

Just my .02 worth.

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Hud is crazy in my town. - Posted by Seymore

Posted by Seymore on February 03, 2002 at 16:16:33:

I can’t figure out how they valuate these properties. They ask over appraised price for total craphouses in warzone areas and sometimes they list great houses in great ares for 50% of the true value. My advice. Find a good Realtor who has experience dealing with Hud.

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Re: HUD bids – worth it if overpriced - Posted by Wm-pa

Posted by Wm-pa on February 03, 2002 at 07:41:09:

Just closed on a HUD property in January. Bid $37,500
(after comming up from $30,000) plus $2,100 in closing costs. As is value was $40,000. This house was also a “shell”. Comps are $55,000- $62,000 and I "estimate $10,000 to rehab and plan to L/O this to recoup some profit. Using my #'s I stand to only make poss $8,000 to $10,000. Is it worth it some say yes some say no.
Also the realitor’s commishion is paid the HUD and it is the standard 6%. If you bid on this HUD home HUD will only accept what they want regardless of what the property looks like. They will not even consider your $40,000 offer, if they just reduced it to $66,000. Look elseware.

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Re: HUD bids – worth it if overpriced - Posted by Chance

Posted by Chance on February 03, 2002 at 01:25:34:

HUD and VA used to be reasonable, now they are difficult. For all intents and purposes they will only accept bids on “first come” properties (ones that have been passed up on the bidding periods) 3% below their asking price. If they don’t get an offer that they like they will either drop the price a few thousand and resubmit it for bid, or take it off the available list and do some repairs if they think it will be cost effective. VA is a better deal because they finance themselves and you don’t pay points and have lower out of pocket expenses than HUD. Their interests rates are very close to market, generally within a 1/2 a point or so.

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Re: HUD bids – worth it if overpriced - Posted by jim

Posted by jim on February 02, 2002 at 23:18:09:

You are so right, but HUD will not listen to reason, which is why I pass them by. They want to get what they have in the house, which is the balance due on the loan that the people who were foreclosed upon owed plus some administrative fees. If you point out what it needs, they will show you the city’s assessed value or what it was appraised for three years ago before the animals tore it up.

My suggestion is to get a good realtor involved, who has sold HUD homes and is familiar with the process. Depending on where you are, you may have a hard time finding one because I hear the commissions are not high on HUD homes. The realtor should find out from HUD if they are willing to accept less, and be willing to submit multiple offers. Don’t waste your time with a realtor that will not do this. Realtors here are a dime a dozen; unfortunately many of them don’t want to work hard.

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Does net to HUD mean commissions, etc? - Posted by ken

Posted by ken on February 03, 2002 at 18:28:54:

OK, a little silly question, but it’s the anal retentive part of me.

When you say 87% net to HUD of asking price, do you mean after commissions, closing costs, etc?

Thanks for the info, I assumed it was actually appraised, but I got no idea what the guy/gal was smoking!

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Re: HUD - Posted by Mark (WV)

Posted by Mark (WV) on February 02, 2002 at 23:59:10:

Hud if it sets will come down after a while.It sounds like a house that is near here minus the price.Same specs it s a shell only.

This house has been on the market with 2 agents for 3 year with no takers. Last price , last week was $6,000 cash. Guess who will be workin inside the rest of the winter !!
Mark (WV)

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Re: Does net to HUD mean commissions, etc? - Posted by Rob FL

Posted by Rob FL on February 03, 2002 at 19:57:57:

“Net to HUD” is a figure used on HUD’s contracts and on the online bidding forms.

Yes, it is the sales price minus closing costs to be paid by HUD minus the real estate commission minus the “broad listing broker commission” (in Florida this number is .49% of the sales price).