Is HUD-owned houses actually over-priced?

Question

Taking into consideration the bad condition of the property and low-end neighborhood, I feel that HUD houses are actually over-priced. And compared to banks, HUD is harder to negotiate on price. It seems they won't accept any bid lower than 80% of their list prices.

Dispite that, however, most HUD houses are eventually sold! So I just wonder who eventually bought the HUD houses. Investors? Don't they follow the 50% and 2% rules?

Is this just my experience, or you experience the same thing in your local markets? Any experience to share?

Chris Martin · Answer

The short answer is it depends. In my area, over the last 9 years we've seen three broadband brokers for HUD houses, and at each "transition" the game and the rules change. Per public record, in Wake county HUD has transferred (sold) 1 house in 2011 and received 68. That tells me that they are no longer aggressive at "moving" houses. I have placed 2 bids this year, both rejected. Both still on the market at the same price. I used discounts consistent with the 'old' regimes (HMI, MCB) based on historic accepted bids with similar attributes (product (SFH,condo...) type (UI,IE...), seasoning, comparable size, etc.)

At this point in time, in my area, with the changes to the HUD selling process, ... I'd agree with the premise of your post. Relative to REOs and some short sales, the HUD offerings are closer to retail than wholesale.

Chris Martin · Answer

With the new regime, it looks like the bid stats (all bids, bid types, broker reference, etc.) are no longer publicly accessible. It becomes difficult to know what they are accepting and how much demand there is for a property. The counter offers I received were about 12% less than the list price, but they were relatively new listings. Historically, I would buy UI property that sat on the list for a while, so the discounts were larger. To respond to the OP, this is still a viable method if you have cash (actually, just no financing contingency and POF.)

We have/had a database of hundreds of local HUD properties, with all bids (accepted and rejected), etc. We used it to help price our bids. I feel that the transparency was a good "public policy" and eliminating it is a step in the wrong direction. In my area, regarding the OP question "So I just wonder who eventually bought the HUD houses. Investors?" the answer was Yes. Again, this is historic data and may not apply to current HUD sale policies.

John P. · Answer

I'm in contract on a HUD house in a good neighborhood that meets my investment criteria.  This house was on the market for 100 days and HUD actually countered my offer with a price I could accept.  I found it very interesting that the HUD minimum acceptable offer was exactly 70% net.

Jon Klaus · Answer

Sometimes they start asking prices near market, but if you are patient and persistant you can get them at true wholesale pricing. You often have to wait until they've been on the market a while and keep bidding the prices that work for you.

Steve Babiak · Answer

Public records are just that - accessible to the public.  Might be only at the county courthouse, might be at the local assessor's office, might even be online - depends on how things are set up in the area where you are looking for houses.

Michael Stole · Answer

Where can I find that information?

My guess is HUD has more options on their properties. If no individuals (OOs or investors) pay the market price, then they will sell cheap to local government, teachers, policmen, and non-profit organizations. But they won't give you that price.

I know you can get HUD properties at low prices, but given the condition and rehab cost, they are not cheap. And if that house were REO, it would be sold cheaper.

Steve Babiak · Answer

Checking the public records to see who bought them should reveal what you are seeking!

Jimmy C. · Answer

I think its like anything else.  There are exceptions.

Speaking of exceptional HUD houses.  We bought one for Friday at 13k, and are selling today for 19k.  So anything is possible now.  We don't flip a lot of HUD homes, but there are definitely exceptions.

Jon Klaus · Answer

Chris, I'd expect after the back log of unsold homes becomes unmanageable, you'll see some more discounting. OOs are still struggling with getting financing.

Is HUD-owned houses actually over-priced?

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