Posted by Dave T on April 14, 1999 at 18:09:21:
I can’t talk to the rehab portion of your post, but I did buy three HUD homes last year and I can tell you my experience with less than full price offers.
HUD has a minimum price for each listed property. They will consider as acceptable all offers at or above the minimum price. My experience seems to indicate that the HUD field offices I dealt would set their minimum at approximately 20% below the list price. This means that the “net to HUD” must be at least 80% of the list price. HUD takes your offer price, subtracts the realtor’s commission, subtracts closing cost assistance. HUD also computes the 96% Cash Equivalent Factor. In the end, the net to HUD must be above the minimum for your offer to be acceptable.
On the bid opening day, HUD sells the property to the person making the highest acceptable bid. Bottom line, if your realtor is taking a 6% commission, then your minimum offer probably needs to be 88-89% of list price or higher. The danger with offers at or near the minimum, is that some other investor may submit a higher bid and you lose the auction.
I suggest that you figure out how much you can afford to pay for the property and still satisfy your investment criteria for cash flow or profit. If that price will work for HUD as well, then make your offer at your price.
This is my experience with two HUD field offices before HUD converted to the new contract marketing system at the beginning of this month. I do not know if this pricing strategy will hold under the new system.