Lowballing HUD - Posted by Bert G

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Posted by Dave T on April 14, 1999 at 18:09:21:

Bert,

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.

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Lowballing HUD - Posted by Bert G

Posted by Bert G on April 14, 1999 at 12:19:20:

First the questions, then the rambling.

I’ve never dealt with HUD homes before. Can anyone give me an idea of whether they go for low offers?

What an I infer from a HUD REO having been listed and unsold for over a year? That its too nasty for anyone to tackle, or that nobody’s bothering rehabbing small houses? (About the only rehabs you see are big projects, like turning old schools and warehouses into apartments. There are still more jobs than there are contractors here.)

Realtor mailed me the latest HUD list (of all 14 HUD REO’s in the state.) Of the 2 homes listed in Grand Forks, one was vacant before the '97 flood and hasn’t been touched since. The realtor tells my you have to wear a respirator to walk in, the mould is so bad. A little TOO ugly for my taste.

The other one, however, might not be too bad. Yea, its ugly, but I’m getting pretty good at this carpentry stuff. Based on the location, I’m sure it had a basement full of sludge, but I looked thru the windows and the main floor seems ok. Its a 2/1.5. Its in the HUD “extended listings”, and they say the FMV is $12,000. (They also say fair market rent for a 2 BR apt is 550. I feel guilty asking $425)

Haven’t checked the comps yet, but figure in excellent condition it should bring at least $30K. I figure I can offer and plop down $8,000, try to find a loan based on the ARV, rehab it for $10,000 or less, and try to sell it. Even if I have to rent it out, I should get my money back in less than 5 years. And if I just break even, well, call it education.

Bert G
Grand Forks, ND

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Re: Lowballing HUD - Posted by Irwin

Posted by Irwin on April 14, 1999 at 23:38:14:

I know absolutely zip about your area, but it sounds deadly when it comes to r/e investing. (14 HUD REOs in the state. Give me a break.) How long has this $12k beauty been a HUD REO? It sounds like it’s no bargain in any market. You’ll be lucky to make it habitable for $10k, even doing the work yourself. Thus, you’ll risk your dough, work your tail off at night and weekends and then you’re not even sure you’ll find a buyer at $30, just to net a couple thousand-at best. If you have to do a r/e deal, I’d low, low, low ball this one and hope HUD wants to get rid of it as bad as you want to try to do a deal. I wouldn’t offer $8k, I’d offer $5k (maybe less, if I knew the competition) and see what happens. If you don’t get it, you ain’t lost much IMHO. Also, get inside for a close look before you bid. It might not even be worth the $5k.