Thursday, August 30, 2012
This past week I was shocked by what happened with a bid my buyer made on a HUD owned home.
In case you're not familiar with the HUD bid process. There is a website www.hudhomestore.com where HUD registered brokers can submit "sealed bids" for their buyers. Typically only owner occupants can bid on HUD owned homes for the first few weeks. If, after the owner occupant bid period ends, HUD has not accepted a bid, it then opens up to all bidders - investors included.
Well, my buyer is an owner occupant and in the construction/rehab business so he was looking for something that needed work but was in a good location with good resale potential (Owner-occupants need to live in the property 12 months before they can "flip" to a new owner). We found, what we thought, was the perfect property. It needed about $25-30K of work, wasn't move-in-ready, only open to "owner occupants" and was priced fair. In addition, it was a split-level home which is not in as high demand for the area it is located.
So, when my buyer wanted to offer $16,500 over list price, I thought he was crazy. But, he had made a few offers on other bank owned properties and was out bid, so I understood where he was coming from. I still felt his bid was way higher than it had to be, but he really wanted this house and after I looked at the numbers again, I realized $16,500 over list price was still an okay deal for him.
So, I submitted his bid before the deadline and was absolutely shocked the next morning when I found that HUD had accepted a higher bid. Are you kidding me? What is going on? I couldn't believe it!
My buyer was understandably frustrated. He was willing to bid higher, maybe even higher than the bid HUD accepted.
These experiences always make me appreciate, even more, the open online bidding process. What a luxury for a buyer (and their agent) to know what the current bid is and to have the control to increase their bid and buy the property. I can't wait until the open online bidding process becomes more common place. Any chance HUD would ever change to an "open bid" process? I won't hold my breath.
On a another note - I learned that if the buyer of a HUD home is planning to use FHA financing to purchase, the list price (FHA appraisal) is the appraisal that is used for the new FHA loan. That means that if your buyer bids over list price, they have to come up with the difference in cash at closing. Found that out the hard way after my buyer finally won a bid over list price on another property.