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.
- 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.
- 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!
- 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.
- Make a list and check it 14 times – When winning a bid, HUD gives you 48 hours to have the entire contract package sent overnight 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.
- 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. In our next post I will discuss HUD’s inspection process as it is also quite different from a typical inspection