Dear BP'ers -
I am looking at my first potential deal and its a HUD property. I have obviously not dealt with HUD properties before and learning their cumbersome process to get the deal approved argh...
Anyways, I have this HUD house under contract and I am planning for inspection real soon. I had to go through HUD to request the utilities to be turned on for inspection and today I got a reply from them that they will not be turning on the water!!
My question is how can I get an inspection done without the water turned on? I won't be able to find out water pressure/ leaks and that can be a big ticket item. What would be your suggestion in handling this situation A) walk away from deal B) reduce the offer price by worst case cost estimate C) other suggestions?
Thanks in advance for helping out !!
HUD does a pressure test on all properties before they are listed. Thg info is on hudhomestore under addendums. If the house fails the pressure tear you can't turn on the water because you may flood the house. As an investor your choices are to cancel the contract and loose your earnest money or proceed at the contracted price.
@Mark Ferguson Thanks ... very helpful information!
Looks like I should have been more careful in reading the addendum for HUD inspection.
Right now I am thinking I will go forward with my inspection and see what come out of it ...
Like the other poster stated look at the addendums under PCR........Property Condition Report. They test all that stuff and they also give a vauge estimate of obvious repairs. What I do is do my inspection when I view the house. I then submit a clean offer for the best price. Believe it or not I called the HUD agent handling my home and asked them what is the lowest offer they would take. They resisted at first and I just told them I didnt want to waste any time. Give me the number and it was a done deal. They were great to deal with.
@Jay C. good tip on asking the agent for the lowest they would accept. I should have thought of that :)
I already have my bid accepted so a bit late for that :)
@Jay C. That can be a good tactic asking the listing broker. They are only guessing based off past experience. The amount HUD accepts varies by region and time on the market. I am a HUD listing broker.
@Talal B. If I am not mistaken, from what I have read on HUD contracts, HUD sells their homes "as is, where is". They will not do any repairs and they will not allow you to do any repairs whatsoever before you close on the home. Regardless of whether it is a simple code violation, damage etc. you are not to lift a finger to improve or repair a HUD house until you own it and your name is on the title.
I got permission from the HUD Field Manager in my area to turn on the utilities on a HUD home I was working on that I had under contract. I needed to turn on the natural gas which would have helped my inspection but the tech from the gas company pointed out some code violation to do with the venting of the furnace. I could not correct the violation per their rules so I could not turn the gas on. Like a previous poster said, if you are in a situation like this, you either pass on the deal and lose your EMD or move forward if you still feel comfortable with things.
I do not know if you can re-negotiate, it may be a possibility and you can try but I do not know. If you do try and are successful, let us know.
I should have been more clear. The listing Brokers on these deals are for the most part clueless. They unlock the door they re-lock the house. I called the HUD Asset Manager and they gave me what they would take down to the penny. In the end it was less than I expected.
No offense to Brokers.
@Talal B. It is not that difficult. Just make sure you read all your contracts that you signed very carefully. Also when you see a property you like on the HUD website, go to the addendums page and read everything especially if it is a property you really really want. Granted start with the PCR (Property Condition Report) and the Repair Escrow if there is one to get an idea of what they estimate the repairs would cost in order for the home to qualify for an FHA loan. I usually download all the addendums on a property I set my eyes on with a focus to bid until I win.
I had my package rejected once because I had left out a "Disclaimer and Disclosure" document that I was supposed to sign and include in my package even though I had followed the Asset Manger's Instructions to the letter on how to properly fill out my package. The problem was that the missing document was one of the documents on the addendums page. They had not mentioned this in their instructions though and I had not checked out the addendums fully. Thankfully, they allowed me to fix it and they ended up approving the package.
I got the PCR and repair cost from HUD. They have plumbing repair at $500. I know these are just estimates but should I read it as "no major plumbing replacement needed"?
Thanks for the input.
@Talal B. - I've bought about 30 houses, most of them being REOs and HUDs. You should go ahead and assume that there will be some plumbing repairs and build that into your repair estimate and the price that you are offering. I can't remember a single time that I had the utilities turned on for an inspection. For that matter, I often don't even include an inspection contingency. If you are buying REOs and HUDs, you can almost be guaranteed of having to do some plumbing repairs. But hey, on the other hand, your offers should be low enough to allow for this anyway. For example, if you're making good offers, you might be looking at a 20K profit. If the place actually ends up needing $1000 worth of plumbing repairs, you're still making 19k in profit. That's still good money on an MLS-listed property. My advice to you, learn how to make your own inspections prior to making offers. Then make strong offers with no inspection contingency (offer price should be low enough to cover the risk).
@Talal B. - A little more about what I was saying above. This will be relevant more to REOs.
If you come in and make an offer on an REO with an inspection contingency, then someone like me may make an offer on the same property - with no contingency. And my offer may be $5000 less than yours to cover my butt in case there are extra repairs that I do not know about. And often, the bank will take my offer for $5000 less because it has no contingencies. So, just assume that those repairs will be there and account for them in your offer.
@Bryan L. Makes great points. I do the same thing with inspections.
@Bryan L. Thanks .... excellent advise. Appreciate your insights, it definitely makes sense.
Excluding the repair estimates, is there is discount % number you have in mind when you make REO/ HUD offers i.e. 10% off Asking etc.
For the most part my opinion is if an inspection will change your opinion of value on a HUD house, you bid too much.
Maybe there are some major structural issues the untrained eye might miss or something like that, but just praying the plumbing is good is a bad idea.
By the way here is a quick primer on how to read the PCR:
- If it says something is broken then it is and budget for it (don't believe their estimate if given).
- If it says it works, assume this is incorrect and budget for it.
Your welcome. :)
@Talal B. - You don't make your bid based on a percentage of asking price. You make the bid that works for your business model. Don't buy anything unless you buy it at your price, not theirs.
@Bryan L. Wise words...thanks :)