How should I structure my HUD bid for best chance of winning?

16 Replies

My wife and I are about to put a bid in on a HUD home. This will be a bid during the initial owner occupant 10 day period. We love the home and it's in a great area. HUD's as-is and list price is $114K for the property which is way less than the house is actually worth. It's insured with $2000 in repair escrow. Just needs a few minor repairs. The basement will need some form of waterproofing (which they didn't catch on the FHA inspection). **This would be an out of pocket expense after closing if we won the bid. We're approved for $120K FHA 203(b) loan. We've got about $7K-8K cash available to apply toward this purchase. How should we structure our bid to put us in the best position to win??? Our mortgage guy suggested we bid $100 over the list price and ask for 3% in seller concessions. We would then have around 4% total into the transaction but we would be getting a home with a lot of equity in it.

what does your Realtor advise and what is your market like? Your realtor should have experience to know how competitive HUDs are in your market. In my market, if that was a good deal, you would get beat out by five other bidders. We are in a very tight sellers market right now.

I am seeing over bids of 10% or more on some good deals. Remember if you overbid you have to bring the difference between list price and your overbid to cash at closing, because the FHA appraisal has already been done at list price. If the water issue is something the lender says needs done for FHA, then it can be added to repair escrow. You need two bids and letter from your lender saying it is required for FHA. (This is done after your bid is accepted).

If you ask for 3% closing costs, then that will count against your net bid to HUD. That is all HUD cares about. Someone who offers full price with no closing costs will have a much higher net to HUD.

@Jason Ligon

Its good that you are trying to buy a home. Honestly, I would never bid list price unless there is competition regardless of the area. Even then I would just let the property go. I dont know how your market works, but since its in the owner occupant period, there should be even less competition. I would check to see how much people are bidding on the property then determine what you need to do from there.

For tax purposes, I would have the tendency to bid at 97% of the offer price, but do not request the 3% closing cost plus the $100.00. This bid is the same as the one your real estate agent suggested as far as HUD is concerned.

The slight advantage is when the county assessor send you next year taxes, you can appeal it using the sale price to show the decrease in value due to condition. While taxes are based on comps as well, it will give you a slight advantage. In addition since most assessors do not actually assess property every year but rather use an appreciation value plus building permit improvement costs, this reduction should last several years. Note: Do plan on having to appeal your tax bill you can check with the county on how to do this.

Also check on HUD's web site to see if any rebates (lack of a better term) or other incentive exists for an early closing date. In some areas there are incentives for closing within 30 days, 45 days and 60 days, but they are not granted unless asked for but are automatic and do not affect your bid.

Try looking at the accepted net to HUD for your target area on This will give you a great idea about who is buying these types of properties in your area and what % of list they are selling for.

@Winston Spence , first off I just realized I can tag someone from my phone now! Awesome.

Winston, why would you never pay list? I look at what the ARV is or cash flow return based on what I buy it for. If the list price is already 50% off of market value I will offer full price or higher that day to lock up the house (assuming it is not hud with no bid periods). List prices with HUD vary greatly. I have seen homes in the same neighborhood in relatively the same condition with the same basic features listed for 110k, 130k, and 155k within two months of each other. These were all my listings and they all sold in the 10 day owner occ period. The 110k was over bid to like 117k, the 130k overbid to 132k and the 155k under bid to 150k. The person who overbid 7k on the 110k house still got an awesome deal.

My point is you must look at every deal individually. A blanket statement like never pay list price would cause me and many others to miss out on some great deals.

I agree with Mark, I doubt that 100 over list price would be enough to win the bid. I recently had a friend try to get a HUD home he bid 2500 over list and still missed out on the property and he was not bidding against investors.

Jason, make sure you have a complete grasp of your required cash to close. With 3.5% down, you're usually ( here anyway) going to be into it for about 10% including closing costs, prepaid tax and insurance escrows, etc. unless you're getting a "rebate" from the lender, which means you're paying a slightly higher interest rate. There's nothing wrong with that, as long as you're aware of it.

@Mark Ferguson

If the property is already undervalued and noone is bidding, why not go the minimum HUD is trying to net, or REO for that matter. Just makes it a better deal.

@Winston Spence , but this one is in the initial 10 day bid period. It is impossible to know how many people are bidding or how much they are bidding. If it was after the 10 day bid period and no one had bid, then maybe a low bid might work.

Thanks for all the responses. I'm not sure if they helped or confused me more because everyone had varying opinions. LOL. We really want the house so I guess at this point I really need to dig into the numbers to find out how much we can really afford to come out of pocket keeping in mind how much the house is really worth. This is not for investment and will be our primary residence. I need to figure out exactly what costs are not rolled into the loan with FHA. I heard something about 1.75% PIM being out of pocket as well. Is that the case for 203(b) loan as well?

This is a pretty hot area. Yesterday we viewed a house in the same area that had just come on the market the previous day. We I pulled up to the house there were people swarming like bees. My realtor said there had already been 25 showings earlier that day and 7 bids put on the property. This one wasn't a HUD but it was a comparable house in the same area with nearly the same asking price.

Hopefully people's negative perceptions of HUD will keep most folks from bidding on this. I think a lot of people think of HUD homes as "those $1 houses for poor people". Thank goodness for ignorance!

@Jason Ligon

I wouldn't bet on that perception. HUD homes are one of the best deals out there and my listings routinely sell for over list price.

@Jason Ligon I think you have a serious misconception of how other folks feel about HUD houses. And the reality of the bidding process. For better or worse in many areas investors do bid on these houses during the OO period. Its not right, and I hope these people get caught, but it does happen. If your area is relatively hot now and this is a good deal there will be other bids.

You're making a mistake by falling in love with a house. Its just a house. A pile of sticks and bricks. There are dozens more just like it. Maybe hundreds or thousands. If you want a good deal, you can't be picky. If you want one specific house, forget about getting a good deal. With your agents help figure out what others might bid and bid more.

Thanks @Jon Holdman

You are exactly right. We are first time home buyers and I'll admit we have definitely made the mistake several times of putting too much emotional stake in a house just like your Ghostbuster. Great clip! It has burnt us several times and caused a few arguments in our relationship.

Originally posted by Edward Burns:
For tax purposes, I would have the tendency to bid at 97% of the offer price, but do not request the 3% closing cost plus the $100.00. This bid is the same as the one your real estate agent suggested as far as HUD is concerned.

This is the same for HUD, but it's not the same for the buyer who would have to come out of pocket with the 3% to close. He stated that his cash was tight. Many, maybe most, FHA buyers need the 3% seller concession in order to get into the house with their limited funds.

There was a HUD house I bid on a couple months ago listed for $46,000. I think I bid a little over $50,000 and it sold for $70,000. You just never know.

You are a home buyer not an investor.

Decide if you care more about getting a good deal or getting the house. You SHOULD care more about the deal then the particular conglomeration of building materials, but that isn't reality.

If you want to have the best chance to get your bid accepted then offer the most you possibly can. HUD is pretty simple in that regard since you can't really mess around with other terms.

So figure out the absolute most CASH you have to put towards it and back into an offer price. Since it is the NET that they care about put in for the 3% credit since you can pay more for the same cash investment by saving on those closing costs.

Keep in mind if you are doing 203(k) that the repair escrow counts towards the down payment requirement.

PLEASE NOTE that I'm just giving you advice to achieve the goal you asked about. I do NOT advocate actually doing it...

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