HUD REOs
Has anyone dealt with HUD REOs? I'm looking at one with a list price of $137,500 that has been vacant for almost 8 months. I made an offer of $110,000 a couple of weeks ago and was given the cold shoulder. This was 80% of the list price and still no response. Well I take that back the countered at $134,500. I can go as high as $120,000 and still make a decent return, but I wonder if I'm wasting my time here. Any similar situations out there?
You will find that not to many of the VA, HUD and FHA REO's are negotiable on their prices. The price is set and they can and most of the time will wait till they get their price. Remember, this is the government...Good luck
HUD will negotiate if they have owned the property for a considerable amount of time. You mentioned that it's been vacant for 8 months. Has it been listed with HUD for 8 months? It's highly unusual for them to not drop the price if it's listed for that long. If $137k is already reduced price after initial listing, then they probably won't negotiate much.
They will also be tougher if the property is either insurable for FHA purposes(meaning that an FHA mortgage can be obtained for the property).
I have some experience with negotiating.
80-85% of the list price is a good starting point. If the seller budged even 3k then congratulations, you are negotiating. The key consideration is, "Why did they lower the price?" Usually when a concession is given then I will have a stipulation attached to it to justify lowering the price. If not then that just means the seller is willing to give away money.. which is the best indication that they are not firm on the price. Now make your real offer. They probably will agree to 90% so your next offer should be just below that. (As if you are really making the effort) But pay attention to what stipulations are adjusted with each counter.
Wagtre:
I have bought numberous HUD Properties. What was your net to HUD?
All Hud cares about is their net. I would suggest using a Broker who will throw in
their commission and then pay them on the back end a couple bucks or give them the listing when you sell it. Also, keep offerring as I have offerred the same price on properties that were declined one week and then accepted the next. Good Luck!
wagtre - the one thing to understand in real estate investing is that your experiences can be the exact opposite of another person posting here, the factor will be your geographical area and what the market conditions are.
You have to understand your market itself. If you hud website has it, there should be a stastical bid area, go to it and analize the historical and statistical bid results on houses that have sold. You will quickly get an idea of an average percentage of discount given and even the exceptional discount. Then you have to apply some first had experience to the situation, the only way to learn what that exceptional discount consisted of is to go look at some of these properties and follow them through the bid process to see what is happening in your market.
I can tell you here in Denver that 72 percent of all HUD homes are not purchased by investors. Also statistically a HUD home here is on the market for less than 30 days. Do you think those two statistics have any effect on the discounts that are accepted on HUD houses here?
Most of my propeties are huds and I'v discoverd its not so much a nagotiation as it is you hitting the mark. They have a equation they follow, they'll lower what they will exept every two weeks, by about 5% if it stayes around that long. I recently got one for 75%.Also depends on the location (I hope your not in California). Also the net to hud is the magic number let them keep any repair money they offer and get your broker to take as little as possible then pay him extra at the resale or on the side. You should also note just because it was vacant 8 months it may not have been posted that long. I have actually waited a week and bid another $100 above my previous price and got it. Its like saying " Its not worth what you asking" to them. But on the down side I was outbid by $10 bucks one time while doing that. Good thing there is no shortage of HUDs
Quote:Has anyone dealt with HUD REOs? I'm looking at one with a list price of $137,500. I made an offer of $110,000 a couple of weeks ago and was given the cold shoulder. This was 80% of the list price and still no response. Well I take that back the countered at $134,500. I can go as high as $120,000 and still make a decent return, but I wonder if I'm wasting my time here. wagtre,
Yes you are just wasting your time and your real estate broker's time. As a rule of thumb for an investor property, your bid needs to be about 93% - 94% of the list price or higher. If you want closing cost assistance, increase your bid by that amount.
There are exceptions, of course, but this general rule of thumb will still allow your bid to be within HUD's minimum net.
Taking your example, I would guess that HUD's miminim net would be about $119,650. If the sales commission is a full 6%, then your minimum bid should probably be $127,300. I would increase this to $127,850 just to be sure that I have a chance to be at or above the minimum net to HUD.
If you are bidding as an owner occupant, then your minimum bid needs to be about 95% of list price, because the net to HUD minimum is a little higher for owner-occupied bids.
You will have to explain your comment that "they countered" your original bid. In my experience, HUD does not counter. They either accept or not, without negotiation. Did HUD actually counter in writing, or did your real estate broker just tell you what your bid needed to be to get accepted?[ Edited by DaveT on Date 01/07/2004 ]