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How Low Can I Bid On A HUD Home?

Written by Frances Flynn Thorsen on Monday, 04 September 2006 7:00 pm
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"How low can I bid?" "How much is the property really worth?" "What do people usually bid on HUD houses?" These are the questions asked over and over in every corner of the HUD Home for Sale kingdom. There are four important factors to weigh in determining the amount to bid on a HUD Home:

  1. Ability to Finance

  2. Appraised Value

  3. Comparable Value

  4. Lowest Net that HUD Will Accept

Ability to Finance: Use the lesser of two numbers to arrive at a sale price for the property -- the Qualifying Number obtained from the lender, or the Comfort Zone Number, the maximum amount that he is comfortable spending on monthly for debt service.

Appraised Value: HUD orders an appraisal of the property when it takes title. This number is shown on the property description and is used to determine an initial sale price.

Comparable Value: Prepare a Comparative Market Analysis (CMA) of the property for the buyers comparing several similar SOLD properties in the area of the HUD home that were settled in the last six months. Online valuation tools like Zillow have received a lot of attention in the press this year, but these cyber tools do not offer the reliability of a CMA that is done by a qualified real estate pro.

A competent real estate agent will compare a single detached home with other single detached homes; he will compare a town home with another town home. The online valuation engines mix and match styles, genre, and type in a manner that renders them useless for serious comparative data studies.

The Lowest Net that HUD Will Accept: There is a wealth of information on HUD's websites that list HUD Homes for Sale data. The Statistics page attached to the HUD Homes for sale page on the web is a treasure trove of information.

HUD's M&M contractors receive performance ratings based upon the net proceeds for the homes that they sell. The net figure is calculated on the net proceeds versus the appraised value of the property.

For more help, go to the Bid Statistics page and isolate all of the properties that have been on the market 45 days or less.

  1. Calculate the Appraised Value to Sale Price ratio for the SOLD properties and then find the average.

  2. Calculate the List Price and the highest unsuccessful bid amounts for the UNSOLD properties and then compare these numbers with the numbers for the SOLD properties. The lowest Contractor Grade in the SOLD group is a good prognosticator for the lowest price that is likely to result in a sale.

  3. Repeat the two steps above for properties that were on the market more than 45 days.

Watch for patterns in the bid results. One common strategy for buyers who are bidding during the Daily Bid process is to bid very low on the first day and raise the bid in small increments each day until a bid is accepted. While this method of bidding can be a good academic exercise, it can consume a great deal of time (new paperwork must be executed for each subsequent offer) and it can be disappointing if another buyer's bid is accepted before you find the lowest net return to HUD.

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