Apprasial on HUD home before bidding?

16 Replies

My first post on BP!

I have been a 1-property landlord in Madison, Wisconsin for the past five years, and am now checking out a HUD owned property to owner-occupy for a year before selling or renting out. It is in a desirable town just outside of Madison, walking distance to good schools, and appears to be listed below market, but I want to make sure I am not missing something.

  • The home is in the exclusive period until 2/27, with first round of bidding closing on Sunday
  • 4 bedroom/3bathroom, but listed as 3/2 on the HUD site (HUD doesn't count rooms below grade?)
  • House was built in 2006
  • Listed at $185k
  • Has been assessed at $244-255k every year since 2007
  • Property taxes ~$5,200
  • Disclosure does not reveal any major issues with the house -- just missing kitchen appliances and railing needed on back deck

Given the spread between the list price and the assessed price (and my simple Zillow tour of neighborhood prices), it seems like this house could potentially be a great deal for me. I have already reached out to my lender to get pre-approved so I can bid, and I contacted the agent who listed the property for HUD to see it since I don't have a buyers agent.

My thought process was to next:  (1) ask the agent to pull comps from the area to see what homes are really selling for; (2) see the house; (3) get a home inspection to make sure there aren't more serious issues; (4) bid. 

If I am counting on this being a deal because of the spread between list price and market, is pulling the comps enough? Should I get an appraisal? Am I missing something obvious here?

Hi @Tom W.  . I would get an agent that is not the seller's agent. It is very tough (not impossible) to avoid a conflict of interest when the agent is representing both sides. The scale would not tip in your favor. You don't need an appraisal, but you do need a good agent to pull comps. You also need to be able to accurately estimate repair costs (plus overages).

Also, HUD homes don't allow for inspection contingencies so you'd have to inspect before you bid (at your cost).

Thanks, @Mark Bookhagen . I reached out to the listing agent because I thought they would respond quickly to some simple questions I had about the listing, but I understand the value of having someone representing just my interests. I will look into a buyer's agent for the comps and putting in a bid. I have someone that I used before, but I need to make sure they have a NAID number to place a HUD bid.

Assuming the comps come back in the same ballpark as the assessment and the inspection does not reveal any major work that need to be done, this seems like a good deal - am I missing any other variables?   

Also, shout out to your home town -- I spent a few months up there for work last year!  

I would just caution a couple things:

1. Assessed values can be very wrong. It depends on your area, but in Buffalo, I don't but any stock in them.

2. Finding out whether it is a 3 or 4 bedroom (and 2 vs. 3 bath) is important as it will definitely change the resale value. You'll want to check on your county's website to see how it is listed there. You can also call the county to find out whether the extra bed and bath were "permitted." Just make sure you are rock solid on the comps and then subtract a little.

Best of luck! 

You DO have an inspection period as an owner occupant, but not as an investor.

Originally posted by @Mark Bookhagen :

I would just caution a couple things:

1. Assessed values can be very wrong. It depends on your area, but in Buffalo, I don't but any stock in them.

2. Finding out whether it is a 3 or 4 bedroom (and 2 vs. 3 bath) is important as it will definitely change the resale value. You'll want to check on your county's website to see how it is listed there. You can also call the county to find out whether the extra bed and bath were "permitted." Just make sure you are rock solid on the comps and then subtract a little.

Best of luck! 

 1. Absolutely.  Getting the comps from a realtor will make this a "go" or "no go" for me.

2. Checked the county records -- it is a 4 bed, 2 bath. Listing agent was the one that told me HUD doesn't count any rooms below grade.

Thanks for the advice!

Originally posted by @Wayne Brooks :

You DO have an inspection period as an owner occupant, but not as an investor.

As an owner occupant bidder, can you adjust your bid during the inspection period to reflect the cost of any repairs? I understand that HUD sells "as is" and will not make any repairs uncovered during the inspection.

The USPAP standard for ALL appraisers, HUD, VA, Conventional, etc require that below grade bedrooms, family rooms or other any other finished space does not add to the square footage of the appraisal. The finished space adds value but not square footage, even if the portion below grade is only even 1 foot.

Originally posted by @David Krulac :

The USPAP standard for ALL appraisers, HUD, VA, Conventional, etc require that below grade bedrooms, family rooms or other any other finished space does not add to the square footage of the appraisal. The finished space adds value but not square footage, even if the portion below grade is only even 1 foot.

Good to know-- thank you for the insight! I had assumed it was a HUD-specific thing.

Originally posted by @Tom W. :

You DO have an inspection period as an owner occupant, but not as an investor.

As an owner occupant bidder, can you adjust your bid during the inspection period to reflect the cost of any repairs? I understand that HUD sells "as is" and will not make any repairs uncovered during the inspection.

 No you will not be able to adjust your bid based on the inspection results and you may or may not get your $1000 Earnest money back depending on the severity. Investor is a no on the EM and owner occupant is a maybe

Keep in mind you will also incur all the costs of turning on utilities and the re winterizing as well. Full blown HUD inspections can easily cost $1000 or more so plan accordingly

Originally posted by @Greg H.:
 No you will not be able to adjust your bid based on the inspection results and you may or may not get your $1000 Earnest money back depending on the severity. Investor is a no on the EM and owner occupant is a maybe

Keep in mind you will also incur all the costs of turning on utilities and the re winterizing as well. Full blown HUD inspections can easily cost $1000 or more so plan accordingly

Sounds like pre-bid inspection is still the way to go then, even with the post-bid inspection period.  Thanks!

@Tom W.  

check for freeze damage, its a big problem in colder areas.  saw one yesterday that had severe freeze damage, homes with hot water or steam heat are practically vulnerable.

also check for stolen pipes, wires, another one that I saw yesterday has all the cooper pipes, and all the cooper wires and all the electrical equipment stolen.  The furnace was an antique from the 1930s and didn't look like it could work and even if it works, should be replaced.  So at this one house it needed all new plumbing, new electric and new heat.

@Tom W.  

The only pre-accepted inspection you can do is visual as you cannot alter the property in any way

Originally posted by @David Krulac :

@Tom Wangard 

check for freeze damage, its a big problem in colder areas.  saw one yesterday that had severe freeze damage, homes with hot water or steam heat are practically vulnerable.

also check for stolen pipes, wires, another one that I saw yesterday has all the cooper pipes, and all the cooper wires and all the electrical equipment stolen.  The furnace was an antique from the 1930s and didn't look like it could work and even if it works, should be replaced.  So at this one house it needed all new plumbing, new electric and new heat.

 Freeze damage is my biggest concern, given the climate.  I will be on the lookout for theft and of wiring and pipes as well.   

Originally posted by @Greg H.:

@Tom Wangard 

The only pre-accepted inspection you can do is visual as you cannot alter the property in any way

Gotcha. How does HUD determine whether or not I get my EM back if the post-accepted bid inspection turns up something major like frozen pipes? Is there a dollar threshold? Or is it just at their discretion?

@Tom W.  

It is up to the discretion of that Asset Manager as there are no set guidelines that I am aware of

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