How to Negotiate a HUD Home, Part 3 – Tips and Examples

Now that you have an understanding of how to negotiate a HUD home and are aware of their inspection practices, I wanted to finish this series with just some tips from my experience that could also help you along the way and maybe save you even more money along the way.

  • List Price Vs As-Is Price – When viewing a HUD home on their website at www.HUDhomestore.com you will notice that they will show two prices: List Price and As-Is price.  The List Price is exactly that – what they are currently asking for the property.  but it is the As-Is price that can help you determine when a good deal is near. The As-Is price is the appraisal that HUD received when they acquired the property.  When the List price is below the As-Is price, then you know the property has good value potential because it has been on the market for awhile and/or needs work.
  • Appraisal – When financing a HUD home, use that As-Is price to your advantage.  By acquiring HUD’s appraisal after having your contract accepted (which they usually give you)  you can save yourself $300-$400 from the lender’s appraisal. It may take some convincing of the underwriter to use it, and it usually depends on what date the appraisal was completed on.
  • Closing Costs – You can always ask HUD to pay for closing costs during the bidding process but it is not for specific items.  For example, if you wanted $3000 of your costs plus a $250 flood elevation certificate, you would ask for $3,250 and pay for the certificate yourself.

Most importantly, choosing a Realtor experienced in working with HUD properties is paramount.  I have navigated many different HUD transactions with unique challenges to each of them. The common component is that every single one of them CLOSED on time.   If you’re interested in a HUD home, call me and let’s get started!

Sincerely,

David R. Madaffari, Realtor
Keller Williams Realty – First Choice
Office: 225.744.0044
Cell: 225.772.3283 (DAVE)
37325 Market Place Dr. Ste D
Prairieville, LA 70769
www.DavidMadaffari.com
Each office independently owned and operated

How to Negotiate a HUD Home, Part 2 – Inspections

In my last entry, I talked about some tips and tricks from experience on how to negotiate a HUD home and land a great price.  Today, I will discuss the inspection process as it is a little different than a typical inspection.

Before bidding on any HUD home, you should have reviewed the  Property Condition Report (PCR) and the Seller Disclosure addendum.  The PCR is the result of HUD’s own inspection but it is not very thorough.  To determine the viability of the electrical systems and items they hook up a generator to the home and try to power the different systems.  To test the plumbing, they run compressed air through the main water line into the house and test whether it will hold pressure at 30 PSI and if it does not they will determine that the plumbing “has issues.” But so far in all of my transactions, the reason for not maintaining pressure has just been because a faucet wasn’t turned off all the way.

Sample PCR
Sample HUD Seller’s Disclosure Addendum 

HUD’s process to do your own inspections can be tedious and stressful if you need the utilities turned on.  While an inspection period is typically 10 days, HUD gives you only 3 days for you to have the utilities turned on.  To do so, you have to get written approval through the Asset Management Company responsible for the home, and that can take 2-3 days by itself.  This process could be a non-refundable $50-$150 JUST to turn the utilities on and subsequently turned off.

Because all HUD homes are sold “AS IS” the inspections are for your own information only and HUD will not do any repairs.  The lack of repairs and condition of the property is the trade-off for better deals that usually have equity built right into them. If you are willing to roll up your sleeves and are not afraid of unforeseen issues, HUD homes can be very good investments either as your primary home or as a rental or flip.

In my final installment next week, I will provide some anecdotes on particular deals and how I resolved issues as well as any “odds and ends” that can help you navigate the world of HUD homes.

Sincerely,

David R. Madaffari, Realtor
Keller Williams Realty – First Choice
Office: 225.744.0044
Cell: 225.772.3283 (DAVE)
37325 Market Place Dr. Ste D
Prairieville, LA 70769
www.DavidMadaffari.com
Each office independently owned and operated

How To Negotiate A HUD Home, Part 1

Buying a home through HUD can be a very exasperating experience, even for a well-versed Realtor.   Because HUD is a government agency (Housing and Urban Development) you can imagine there is a decent amount of bureaucracy beyond simply bidding and providing funds like a normal transaction.  After completing 6 of these deals this year and a 7th under contract right now, I thought I’d give some tips to both buyers and agents alike on how to negotiate a HUD home deal.

  1. Bidding and winning is easy – it’s the PAPERWORK after an accepted bid that can be trying.  When making your bid, make sure EVERYTHING is the way you want it to be on the contract/deed before submitting.  If even one letter is different on the final contract paperwork, they will cancel the deal and make you start all over again.  HUD is a stickler for minutiae.
  2. Bid low, ALWAYS – This seems like common sense, but I mean aggressively low.  What you want is for HUD to send you a “Bid Counter Notice” email.  In that email, HUD will actually state what their minimum net after concessions is! This allows you to calculate to the penny how much you need to bid in order to meet their minimum.  For example, when HUD told us they wanted to net $132,800 on a property, I calculated that after HUD’s 6% commission our exact offer would have to be $141,276.60.  No need to pay more than necessary!
  3. Always submit offer to be held as a back-up offer – This goes with the item above,  because what can happen is even the minimum net HUD sets on a property will be too high for any bidders.  By allowing them to keep your offer as a back-up, it will automatically be resubmitted every day or so AND when they change the price/minimum net.  This saves you time because you will get the new minimum net each time they change it – WITHOUT having to watch the property and bid every time.  I had one go on for 3 months as they kept lowering the price all the way to our original bid.  Patience IS a virtue.
  4. Make a list and check it 14 times – When winning a bid, HUD gives you 48 hours to have the entire contract package overnighted to them.  That’s $20 each time you mail something.  So do your very best to make sure you followed the instructions EXACTLY as they specified.  Even if you are 99% confident, you may still get an email stating the package is incomplete.  Some items can then be emailed to them, but be prepared to overnight materials as needed.
  5. Closing is as quick as you want it.  Once you get a contract fully executed, closing a deal is pretty quick.  Send your contract package to your preferred title company and you could be closing in a week (of course for financed sales it could be longer).  The point is that the biggest hurdle has been crossed.

I have found that HUD typically gives better deals than a typical bank does on their foreclosures because they price their homes more realistically to the condition of the home. On Thursday I will discuss HUD’s inspection process as it is also quite different from a typical inspection.

How Mortgage Lenders Can Save You Time And Money

The role of today’s mortgage lenders have become more and more intertwined with our business that to properly give a client a great experience, they must be ready and at your side at a moment’s notice.   In my experience, my favorite lenders have essentially let me outsource my buyer qualifications straight to them.

As a buyer, your time is just as valuable to you as a Realtor’s time is to them – and the mortgage lender is there to help them maximize their time.  How?  By meeting with a mortgage lender FIRST before seeing property, it allows everyone involved to be on the same page.  It is also a great chance to get to know each other, talk about the buying process and set expectations.   In other cases, my mortgage lenders have saved ALL of us time in the unfortunate event that a buyer does not qualify for a loan.  How disappointed would a buyer be to find that perfect house only to find out AFTER that they cannot afford it?  Even in this case though, the lender and agent can help create the roadmap to qualification and ultimately help a buyer realize their home-buying dream.

Mortgage Lenders can save everyone time, set expectations for the home buying process and work with the client just as much as the Realtor.  That is why I am proud to recommend these lenders below, whom I trust completely with my buyers’ mortgage needs:

  • John Patton, Assurance Financial – (225) 614-1234  – Conventional and Conforming Loans and is always at the closing for his clients.
  • Kelli Maggio and Paul Barranco, Fairway Mortgage – (318) 773-7691 or (225)413-4283 – HUD Specialists
  • Keith Covington, Key Lending Solutions – (225)-772-0408 – Maneuvered what is most likely the two most unique and difficult deals we’ve faced in light of the government shutdown, and he got it done.
  • Lisa Chauvin, Investar Bank – (225) 907-4529 – VA Loan Specialist
  • Chad Landry, NOLA Lending – (225) 266-8248 – RD Specialist and FHA Specialist
  • Brittany Boudreaux, Prime Lending – (225) 614-9093  – Condo financing and renovation mortgage products

If you are going to be in the market soon, please give one of these fine professionals a call.  You will not be disappointed.

Sincerely,

David R. Madaffari, Realtor 
Keller Williams Realty – First Choice
Office: 225.744.0044
Cell: 225.772.3283 (DAVE)
37325 Market Place Dr. Ste D
Prairieville, LA 70769
www.DavidMadaffari.com
Each office independently owned and operated

Shadows at Manchac Plans are Available!

DSLD has released the house plans for this highly anticipated subdivision in Prairieville.  Located off McCrory 1 Rd/ McCrory 2 Rd just north of Meadow Ridge, initial estimations of home values were between $180,000-$210,000.  However, these plans start at $220,000 and start at 1800 sq ft.  This is welcome news to the surrounding subdivisions as it will help appreciate the property values in the area for the existing homes.  You can view these plans here:

Shadows at Manchac Homes.

As always, if you or someone you know is interested in this new subdivision then give me a call.  You need someone to represent your interests even when buying new construction from a builder.

Sincerely,

David R. Madaffari, Realtor
Keller Williams Realty – First Choice
Office: 225.744.0044
Cell: 225.772.3283 (DAVE)
37325 Market Place Dr. Ste D
Prairieville, LA 70769
www.DavidMadaffari.com
Each office independently owned and operated
 

Existing homes vs new construction – competition is key

Recently my neighbor across the street was telling me about some of the updates he’s done to his home in the last few years.  He said wanted to extend the entire outside wall of his master bath about 1-2 feet in order to install a larger tub.  It clearly was not a cost-effective renovation and it certainly would have not added value to the home.  I suggested that he would be better off just tiling up the entire shower area at a third of the cost and the reason was based on a reality I have talked about for some time.

We live in a 15 year-old neighborhood in Prairieville with homes ranging from $180,0000-$205,000.  In the last several years, this price range has become quite saturated with new construction from several national builders like DSLD and DR Horton.  These new houses boast many prime amenities, such as tankless water heaters, stainless appliances, stone counters, wood floors, and high-efficiency construction to drive utility bills down significantly.  This is our competition.   When locations are equivalent, there really are just two choices – you can update your home to meet or exceed the spec home standards (thus making it more custom) or pricing your home more aggressively to reflect the need for updates.

Typically this decision is based on financials – will I recoup the money I spend updating because of the higher price I will demand?  Or should I just price lower and let someone else do the work?   In this price range buyers have so many choices, and it’s becoming increasingly difficult to convince the average buyer to spend less on a deal if they are not interested in doing a little updating – they can just as easily buy a brand new house for a little more.

I personally lean towards the idea of updating an older home to compete with the new construction.  Once the homes are comparable, then its easier to sell the other aspects of your home to close the deal, whether it is a bigger lot, established neighborhood, location, etc.  Ultimately, a faster sale and less time on the market means more money in your pocket.

I’d love to hear your opinions!

David R. Madaffari, Realtor
Keller Williams Realty – First Choice
Office: 225.744.0044
Cell: 225.772.3283 (DAVE)
37325 Market Place Dr. Ste D
Prairieville, LA 70769
www.DavidMadaffari.com
Each office independently owned and operated