In the past 12 months, I have been showing and selling many more HUD properties.  I would estimate that 1 in 10 are HUD listings up from 1 in 100 just 2 years ago.  The process is much different than buying a typical REO and you need an experienced agent that can help you navigate through the differences in the process.

I thought I would try to outline some of the unique aspects of the HUD home buying process.  HUD (which is the Department of Housing and Urban Development) has foreclosed homes all around the United States.

What is a HUD Home?
Many of these houses were originally purchased with an FHA mortgage which is insured by the Federal government via mortgage insurance. When the bank forecloses on the property, the bank files a claim on the insurance for the amount of the mortgage due. HUD pays the bank and then takes ownership of the home.  This is very much like if you totalled your car:  your bank gets the money owed on the car and the insurance company gets the car and you are done.

How much do HUD homes cost?
While HUD homes are supposed to be priced at market values minus any repairs needed, I have found that they are often priced 5-10% below the other REOs on the market. They can be a great value, despite the repairs needed.

Will HUD make the repairs?
HUD homes are sold as-is, but I have seen HUD install new furnaces or repair the plumbing so that these homes can be sold to owner occupants using FHA financing. This work is usually done prior to the home coming on the market. The new owner is responsible for all repairs and improvements that are not done at time of showing.

Where can I find a HUD home?
All HUD properties are listed on the MLS using a Minnesota real estate broker. Other than a mention in the agent remarks, they are not noted any differently. Additionally, all HUD properties around the US can be found at HudHomeStore.com. This is a great place to see as much information about the property as available.

To see a HUD home, you need to work with a HUD-approved real estate agent (like me!) in that area. We can get you access to the home. HUD does NOT work with any buyers directly.

How do I make an offer on a HUD property?
Your HUD-approved real estate agent will submit your offer for you. It is all done electronically on the HUD website. There are initially no documents to sign or fill out. Each home will have different bidding periods such as: first 10-30 days for owner occupants, non-profits, and government agencies only. After that all bidders are accepted.

Bids submitted on-line are all compiled up till midnight of the previous day. At that time, all those are reviewed and countered or accepted before any new offers are reviewed the next day. Thankfully, you should know within 1 business day if you offer is accepted or countered.

If your offer is accepted, your experienced agent will need to insure that they fill out all the documents correctly and submit them within 48 hours of your offer will be rejected. This can be a frustrating process to make sure all signatures are original ink and all documents are filled out correctly and included.

Closing a HUD home
Closing are done by the HUD designated title company. The closing always scheduled exactly 45 days after the acceptance. It doesn’t matter if you are paying cash and could close tomorrow, HUD waits 45 days. Additionally, HUD does not allow any changes to the offer after submission, so no name changes, no buyer adds or removals, and no change of cash vs financed offers.

Will HUD finance the home?
No. You will need to bring in your own financing. As mentioned above, many HUD homes have been repairs so that they can get FHA financing, make sure to confirm this prior to submitting your offer (your agent should help you).

Can I do an inspection?
Yes, but the process is vague. I recommend you do your inspection prior to offer. Investors will forfeit any earnest money and owner occupants will get only 50% of it back for cancelling because of inspection results.

Are there any special programs with HUD homes?
If the homes are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. The homes must then be used create housing for families in need or to benefit neighborhoods. HUD also offers special home purchase programs for teachers and full time law enforcement officers.

Buying a HUD home for either investment or your personal home can be a great value, but you need to work with a qualified agent to hold your hand through the process. Give me a call and we can discuss!

I have been getting that question more and more every day with my customers.  I answered that question a long time ago about Low Ball offers on foreclosed properties.  That is current my number 1 post on this blog and has almost 60 comments on it.  Although I wrote this post almost 2 years ago, the points are still very valid.  Here is a recap and some additional thoughts:

• What you think the value of the house is does not matter to the bank.  You and I can both believe that this home is worth $40k, but if it is priced at $80k, it is virtually impossible to get the bank to take a 50% discount on the price.  Most often the bank is basing their prices on the advice of their real estate agent and/or other 3rd party agents that they have do BPOs.  And some times, the bank is just plain wrong, but you and I are rarely going to get them off their stubborn number.
• Making a low-ball offer really doesn’t do much for you.  In fact, there may be some validity to the theory that a low ball offer may hurt your future offers on this house.  I have seen the asset managers (humans) get their back arched and almost feel insulted when you send them a low-ball offer.  There is a great chance that they will simply ignore any future offers from you on this AND ANY OTHER HOUSE.  They are under no obligation to sell you anything.  Tread lightly.
• In this market, within the first 5 days, in my experience, you will need to make offers at 98%-100% (or higher) to get a property.  I do see banks simply miss the mark on what they price a home at.  They price a $40k house at $100k.  I am unsure if it is a mistake or some tax/accounting trick for their auditors.  Nevertheless, submitting a 80% of list offer day 1 is a waste of energy.
• Now don’t get me wrong, low ball offers can be made (I have made them) and can get accepted (I have gotten them accepted), but they have to be on homes that have been on the market a while and no one is showing it or making offers recently.  HUD properties are good for this, especially because they tend to keep their list prices abnormally high for too long.  See our upcoming seminar on HUD properties.
• Time is often your best weapon.  If you don’t get the price you want, wait.  My customers have got accepted offers because we simply resubmitted our offer every 30 days until they saw that we were the only game in town.
• Low ball offers on short sales may have more chance simply because if you can justify your offer based on other sales in the area, the listing agent can take that information and send it onto the bank to justify the offer.  Remember, though, you need to base your offer on comps, not just desire.
• Retail sellers are very pinched right now.  Most are selling at huge discounts from just a couple years ago.  I believe many are very stressed out and may just snap if you send them an offer at 80% of list.  While again their property may be high compared to the market, the retail seller may not be able to get down to market (because they have no equity left) or they just haven’t accepted the fact that their house is worth 20-40% less than just a couple years ago.  It will be hard for you to convince them.

Lastly, rely on the experience of your real estate agent to help you through the offer.  If you aren’t getting good guidance from him/her or they don’t work with many foreclosures or short sale, find another agent!

I just had it happen again today.  Property has been on the market for 75 days.  I checked with the listing agent last night, no offers.  We wrote up an offer and I sent it in around noon today.  He writes me back at 2pm and says he now has 2 more offers.  What!?!#@%

This has happened to my customers more times than I can count.  Many of them think that there is some sort of conspiracy going on.  Maybe the listing agent calls all his customers/friends and tells them about our offer.  Maybe there are a bunch of lurkers out there that find out there is an offer coming in and pounce on it.  Kinda like waiting till the last minute on an eBay auction to put in your bid.

While it may be easier to use these conspiracy theories as an excuse/reason that we are now in multiple offers, I doubt that this the case.  I have seen this happen with dozens of different listing agents on dozens of different houses at all price points.  I can’t believe that all of them are calling their friends when they receive our offer.  Frankly, many REO agents are so busy you never even hear from them, just their assistants.

Here is my alternative theory:  I suspect that we are not alone in our search and that the same event (price change, new property on market, new month, solar flares, eclipse, etc) that triggered us to look at and then write an offer on a property happened to others.  Think about it.  The above property had been on the market 75 days.  Why didn’t we look at it and make an offer at 50 days?  Reason:  It was too high priced.  Why not at 60 days?  Reason:  there were other/better deals out there.

While this will sound a little coarse, I think you could look at it like the home buyer (whether investors or owner occupants) travel much like pack animals.  A heard of zebras all walk in the same direction to the watering hole that is 10 miles away, not really knowing who is leading or which exact direction to walk, but they get there at the same time.

Well, this is just my $0.02.  You can take it or leave it.

I got a great question from a long time reader, John Gall, today.  He asked:

When I look at the [other company's] site which I’m sure pulls from MLS I’m seeing the following status on the listings.  It would be interesting to have an explanation of why one is chosen vs another.  Some are obvious but some are murky.

Lender Owned – Obvious

Potential Short Sale – Does this mean the owner “might” be underwater?

Another says “In Foreclosure” Potential Short Sale – Does this  mean the Sheriff sale was done and we’re in redemption?

I thought there were a couple more variations on the “short sale” that I’ve seen and was curious if there was a way to tell if someone has maybe just stopped paying their payment vs they have a sheriff sale scheduled etc.

These are great questions.  As agents, we just assume everyone speaks our language.  I answered John’s question at my MLS site.

So, you read this siren call on the MLS listing that say “Pre-Approved short sale, quick closing possible”.  You get all excited; maybe this short sale will be different.  You get an accepted offer and 4 months later you are still waiting for that “quick closing”.  It happens to me all the time.  I have only seen 2 short sales close in less than 45 days.  So, why do agents put that on their listings?

Read my thoughts over at my Minnesota Short Sale blog.

Home sales in the Twin Cities for November are down almost 40% from last year.  This brings the level back to 207 and 2008 numbers when sales where around 2600 for November.  Additionally, home prices dipped by 2.5% in November. There were off by over 10% in Saint Paul from a year ago.  See the rest of the  SPAAR press release.