Successful HUD Bidding Strategies

How to get an accepted offer on HudHomeStore.com, while saving capital with a sound strategy that has been applied and tested.

Here is an article I wrote in 2016 on Bigger Pockets. The market has changed dramatically from then until now. But if you are looking for deals on HUDHomeStore.com, the strategy is still sound in principle.

Below are some tips that I've learned about making winning bids on HudHomeStore.com. HudHomeStore.com is where HUD (Department of Housing and Urban Development) auctions foreclosures to the public, and you as an investor can buy properties there.

Below is a strategy that is good for when you know you want the property, it's priced correctly, and you want a small discount. There are some other ways to bid and win for less, but this one works for me almost every time. 

Let's call it “The 89% Rule” 

What I figured out through research and implementation is: If your bid is 89% of the asking price NET to HUD, then you almost always get an accepted offer. 

How do you do that? Let’s say the asking price is $120,000. Applying the 89% rule, your offer needs to NET 106,800 to HUD. Meaning, you'd need to add 3% commission for your real estate agent, and 3% for the listing agent. So, you'd add $6,408 to your 106,800 and you'd have $113,208 for your total offer. Your bid of $113,208 nets HUD 89% if their asking price. Since you are bidding against a computer and the computer is basing it's acceptance, counter, or rejection on certain thresholds, 89% net is a “winner winner chicken dinner” almost every time. And you've saved 11%. 

Like I said before, there are other strategies for different thresholds (ie: how long the property has been on the market) but this one works for me almost every time. When the property is priced right and you know you want it, apply the 89% rule!

Happy Bidding!

www.hudhomestore.com

PS:

Some other winning tips pulled from the web:

(Keep in mind...each property has its own winning threshold)

1. Try to bid at the end of the month preferably the last Thursday of the month.

2. Uninsured properties tend to go at lower prices than Insured properties.

3. Properties breaking 30 day periods like 30/60/90/120 have the greatest threshold points.

4. If bidding on weekends, bid on Saturday early, for HUD is open and closed on Sunday. Once they accept they never look any further.

5. Always, check off the position of back-up offer. They usually hold at least 30 days.

6. After placing an offer always review the last 2 numbers of your bid acknowledgement, this indicates how many offers were before you. Should you be -01 then reconsider your offer because you may be the only bidder.

7. In a very competitive situation, consider reducing your commission by a small amount like $50 or $100.

8. Additionally, in a very competitive situation, have the buyer pay your commission by utilizing a "Buyer Broker Agreement" still getting 3-4% commission but the net to HUD is higher thus giving you the edge. (putting $0.00 in as your commission)

9. When reviewing Net to HUD try to round off to attain % positions like over 70% or 80%, etc. (the bottom # as a % of sales).

10. On initial periods, usually the 11th day when bids are open: 91% of net will usually win: 3% closing help, 3% your commission, and 3% asset manager commission.

11. Try to make the net to HUD always end with a 1 or 9.

12. Properties closest to 180 days on market have the lowest threshold.

13. A property that was previously under contract and has thus returned will have a lower threshold.

14. Review the current number of HUD properties that are on the site: High numbers like 500+ will have lower thresholds than counts of 200 on the market.

15. Do not keep bidding the same number when submitting, always increase by at least $500.

16. Bid after 6 PM to assure the property is still available.

17. Properties that have returned to the market due to a failed previous contract have lower thresholds. If they return a 3rd time the threshold will be even lower.

18. Never stop bidding the day you skip could be the day the AM reduces the threshold and a lower bid will overtake yours. The AM never looks back its always the number of the day. You could have offered lets say $100k net today and the threshold is $101k today, yet tomorrow the threshold could change to $97k and you skip the day and an offer of $97.5k comes in and takes it.

19. Make cash Offers on Uninsured HUD Homes. Most properties are available to all bidders are uninsured. This means that they need more than $5,000 in work – or more than 35% of the purchase price. When it comes to cheap homes, 35% is not that much, and you may be able to buy a good quality house at a bargain price.
    
    HUD can't sell these homes with FHA loans. They know that only a few buyers will go through the hassle of applying for a 203k rehab loan. Therefore, cash offers are best. If you don’t have cash, work with a hard money or rehab lender that can give you a pre-approval letter and close quickly.

20. Respond to HUD's Counter Offers. In many cases HUD will respond with a counter offer. We suggest that you submit a reasonable, but low offer first – say 65% of asking price. If there are no other bidders, HUD will counter with a number they will accept. The counter offer HUD sends out is the NET amount they will accept, so you have to add the commissions to the net to get the total contract amount. The buyer’s agent may reduce their commission, if that is necessary to make a deal work. Once other bidders get into the game and offer more than HUD’s counter, you may be out of luck. All bidders get the same counter from HUD. You do not have to accept HUD’s counter offer. You can submit a lower bid. As these homes are on a daily bidding deadline, you can submit a new offer every day. If there are no other bidders, there’s a good chance HUD will accept a lower offer or continue to counter.

21. Be Patient and Ready. There are not too many HUD homes for investors. But great deals appear on the market every single month. There is no logic, why some homes are offered at a bargain price and others are overpriced. You just have to watch what’s happening on the HUD home store. An experienced agent will gladly do it for you.
    
    You have to be ready and pull the trigger when the right deal comes around. Over the past year we had almost new condos offered for less than half of their retail value, we saw a duplex in German Village sell for the price of one of the units, and we found rent ready HUD homes listed for only $11K.

Bonus Tip for HUD Investors

These are the deals where you get the lowest offers accepted. Always keep in mind that HUD is a motivated seller. They make mistakes occasionally that you can profit from. But they do not give their properties away just to get rid of them.

HUD is more likely to accept lower offers on homes that fell out of contract before. Sometimes the relisting of a HUD Home triggers a price reduction as well as a change from insured with escrow to uninsured.