Apprasial on HUD home before bidding?

Question

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?

Greg H. · Answer

Tom W.

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

Greg H. · Answer

Tom W.

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

David Krulac · Answer

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.

Greg H. · Answer

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

Mark Bookhagen · Answer

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).

Tom W. · Answer

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. · Answer

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

Tom W. · Answer

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

Tom W. · Answer

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

David Krulac · Answer

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.