Thursday, October 6, 2011

Have you been involved in HUD sealed bid auctions?

Last month, I sold my first house as buyer agent for a buyer of a HUD property in my area of St. Louis, MO

HUD homes in St. Louis are sold through an online "sealed bid" process and in case you're not familiar with it or it's different in your area, I thought I'd share some observations of the process.

1. There are no pre-qualifications for bidding, but only HUD registered agents can place bids for their buyers. Before you place a bid, you need to make sure your buyer can close.

2. Owner-Occupants have the first opportunity to buy these homes and if not sold within 30 days they open it up to investors. I primarily work with investors and seeing the condition of some of these homes, I don't understand why they make the "Owner-Occupant" period so long. Many of these can only be purchased with cash and even if they have the cash very few "Owner-Occupants" want to take on such a huge project.

3. Once the initial bidding period is over (usually 10 days) bids are reviewed daily. However, there is very little feedback, you simply get an email that it was rejected or accepted.

4. Sometimes, several days (or weeks) after a bid has been placed HUD sends an email to let you know their "minimum bid" that they will accept. This is the only part of the process I thought was helpful, and it doesn't happen for every property. It seems they only use this when they start getting motivated.

5. If your bid is accepted, you have 2 business days to sign all the paperwork (lots of it) and get it to the out of state office handling the closing. If you don't get the paperwork on time or you don't fill it out correctly, they cancel the bid and it goes back on the market. We had this happen and it's not fun. We had to submit the bid again, fill out all the paperwork again and pay to FED-EX again (won't make this mistake twice). HUD is not at all flexible with their process, make sure you read everything at least twice and review all the places needed for signature several times so you don't miss anything.

6. It took the entire 45 days that they gave us to close. My buyer was a cash buyer and could have closed in a week or less. I'm use to working on regular REO's and we've closed them in as little as 10 days after having an accepted contract. This was frustrating to have to wait until the very last day to close it. And, oh yeah, it takes a week to get your commission check after it closes.

After going through this process, I still prefer the "open bid" process where everyone knows the current high bid. However, we did build the "sealed bid" functionality into the online real estate auction system we designed so our customers have that option. We only have a couple customers using it and so it will be a while before I can determine the difference in success rates, but I'll be watching.

If you're interested in seeing how real estate agents & auctioneers are using online bidding for their own listings, join our next webinar on October 20th at 2 pm EST