In order to buy a HUD home, your offer has to meet two criteria. First, your offered price has to beat your competition. Second, your offer must meet the super-secret HUD minimum acceptable bid. In this article, I’ll be writing about determining the super-secret HUD minimum acceptable bid. (Let’s just call it the SSHMAB minimum bid). If you haven’t done so, you might want to check out our first two articles on buying HUD homes here and here for some background.
The first criteria is easy enough to understand. The highest bid wins. I mean, HUD’s the government and all, but it isn’t stupid. So, HUD takes the highest bid net of costs, such as realtor commissions and buyer-requested closing costs, provided it’s above the minimum bid.
Why Do I Care What Bid’s Acceptable to HUD?
First, knowing the minimum bid may help you get your best deal. If you’re looking to buy a HUD home, whether you’re an investor or home buyer, you’re obviously looking for a deal. I mean there are plenty of homes out there for sale that have some advantages over HUD homes. Advantages such as heat, smoke alarms that don’t incessantly chirp for lack of working batteries, and the notable absence of big ugly Warning–This property is monitored by electronic surveillance signs. So, assuming that you’re in the price-conscious buyer category, knowing the minimum bid can help you buy a HUD property at the lowest price. While you still may have competition that may drive the price higher, HUD properties often can be purchased at the minimum bid price.
Second, knowing the minimum bid can help you quickly rule out properties that are of no interest. Depending on your area, you may have more than a few HUD homes as potential options–in some areas, quit a bit more. HUD homes, just like other listed homes, have a list price. Armed with the knowledge of the minimum bid, you’ll be able to rule out some of the properties that are overpriced even at the minimum bid.
Third, if you’re looking at HUD homes, and then offering less than the acceptable bid, you’ll be wasting your time. You can do this all day long if you like making offers, but HUD won’t accept them. This is the corollary to “HUD is government, but it isn’t stupid”. Because HUD is government, it isn’t flexible. HUD will not evaluate your offer, take a look at the property, maybe reappraise it, counter, and then negotiate. It (or at least the private companies that manage HUD properties) has a nice impersonal set of rules rigidly followed with predictable results. Well, predictable within a range.
Determining the Minimum Acceptable Bid
I would love to be able to give you the formula that, once applied to the list price for the HUD home you want to buy, will spit out the minimum bid. Unfortunately, I can’t. The reason I can’t is because (1) the minimum bid calculation is different in different states or regions and (2) it changes, albeit slowly, over time. I might be able to determine all formulas for minimum bids for all HUD regions as of today, but that would take me many, many, many hours and after I got done one or more of the areas would change.
What I can do is give you the exact formula that HUD applied to the sales of HUD homes over the time that I have been buying right up to Rob and my purchases of HUD homes as recently as the Spring of this year. I can also show you how we determined the minimum bid formula and a likely method to determine it for your area.
First, the minimum bid formula was, and is, a percentage of the list price. When I first started buying HUD homes (about 10 years ago), the rule was pretty simple–the minimum bid was 80% of list price. The formula had changed by the time that Rob and I started buying HUD homes (about 2 years ago). It also got a little more complicated. At that time, when a property first hit the HUD list, the minimum bid was 87% of list price. However, the minimum bid dropped to 80% after 60 days.
Which brings us to the second point–the minimum bid is a function of time on the market. When the housing market hit the skids, the HUD minimum bid calculation changed. By the time that Rob and I bought The Loft (click here for the name explanation), the minimum bid for HUD homes was 80% of list price when bids opened. It dropped to 70% after 30 days. There were further drops when a home went unsold for several months, but the number of these homes were so few that it was difficult to calculate exactly. I saw one home that sold at 50% of list price at around 150 days on the market.
So, will this most recent formula work to determine the minimum bid for your area? Maybe, but if not you should be able to determine the formula using this information and the published “bid statistics” for home sales. In a prior HUD article, we took a look at navigating the HUD website to find property information for your area. By navigating to the site for your home state, you’ll see an option for bid statistics. (Click on this link to see the screen shot for Colorado, for example: HUD Bid Statistics). On the HUD homes sites, the private firms managing the HUD sales provide a bid statistics category. The bid statistics page shows all bids, accepted or rejected, on each property for a two-month period. With some effort, you can use the bid statistics page to determine the minimum bid formula for the area over time. The difficulty lies in working with a sufficient number of accepted and rejected bids over months to get a good idea of the minimum bid. However, the information above, along with some patience, should get you there.
A Couple of Final Notes
While I noted that the minimum bid formula changes over time, determining the minimum bid is still likely to be a worthwhile exercise. In the 10 years that I have purchased HUD properties, the minimum bid formula for my area has changed only three times.
Also, you should be aware that when I’ve referred to a formula as a percentage of list price, I am referring to the original list price. After a period of time on the market, HUD will lower the list price, but the lowered price does not seem to correlate with the lowering of the minimum bid. So, in one instance, the list price may not be lowered when the minimum bid has been and vice versa.
In addition, I discovered fairly recently that the management company seems to have some discretion in determining the minimum bid. I came to this conclusion because the minimum bid changed once again after Rob and I bought The Loft, which corresponded with a change in the management company. The minimum bid percentage increased. The increase certainly did not seem to be justified by market conditions. The only thing that had changed was the management company. Given that, I also suspect that the minimum bid calculations when we bought the Loft are likely to be duplicated in other regions where the same management company continues to handle HUD sales. If you want to know to which company I’m referring, drop me an e-mail, and I’ll be happy to pass along the information.
Finally, just because the bid’s acceptable to HUD, doesn’t mean it should be acceptable to you. You’ll need to still make your own determination of value. I’ve found several HUD homes that met my criteria. With the knowledge of HUD’s minimum bid, sometimes I’ve been able to buy homes that meet my criteria and then some.
Happy hunting!
{ 19 comments… read them below or add one }
I think you are missing the links for the first two HUD posts.
Since I don’t even know what HUDs are (although I can guess)…I need those links!
I supposed I could use the search function…nahhh..
Mike
Oh no, missing links! You know what they say–link twice, publish once. Thanks for the heads up, Mike
Fascinating, I’ve been idly perusing the HUD and FHA repos in my area and this is a handy rule-of-thumb valuation for them. I might seriously look into making a bid on something using this formula/article.
Randall,
Thanks for the comment. One of the added benefits to looking at HUD homes for potential investments is that you really can start to gauge what’s available in the foreclosure market. If you take it to the next step, drop us an e-mail to let us know what you’re finding.
Quick question – how does one determine the ORIGINAL listing price when looking at the bid statistics? For Michigan, all I can find is the latest listing date.
For example see sales.clfres.com
onthuhlist, If I understand your question, you’re trying to determine the original list price for a sold property when the list price has been reduced. Unfortunately, I believe that most of the bid statistics show only the list price current as of the day of sale. However, there are two options here. One is to keep the listing information over a period of time to retain the original list price. I did this as a matter of course when Rob and I were buying properties just because we were regularly scanning updated listings for deals. But I would track the sales against the listing information to calculate the minimum bid numbers. Another options, albeit imperfect, is to understand that original list prices are generally to the nearest 1000 and are generally reduced by 10% increments. So, an original list price might be 92,000. The first reduced price would 82,800. If you see a bid statistic that is not rounded to the nearest thousand, you are likely looking at a reduced price.
Hope this helps.
One of the better explanations I’ve ever seen on this difficult topic – thank you for putting this out there.
I have been bidding on a property for 2 weeks now, but to no avail. I would love to know how I can find out a better price to bid.
Help, please!
Akeya,
Always happy to help, but I’m going to need more than that. Consider an e-mail. My contact info. can be found in the (cleverly named) “contact us” tab at the top of the page.
Has the acceptable bid changed at all in todays market, since housing prices are all dropping. Thanks for the great info- Mike
Mike, Indeed it has. While the principles of this article for determining minimum acceptable HUD bids are still applicable, the formula appears dependent on the management company handling the foreclosures. In other words, they seem to have discretion rather than following specific HUD rules for all regions. Since this article was posted, we have had gone through two management companies and the minimum acceptable bid has changed even during the time of the same management company. Rob and I were able to purchase a HUD home several months ago for about 60% of the list price. So, in any market, determining the minimum bid takes a little homework. Watch prices for a period of time and look for these patterns: a percentage of list price, the lapse of 30 day periods, and relists. From the bid statistics, you should see a pattern develop. Also, test it yourself with low end bids on properties that have sat for awhile. Good luck!
Thanks for the information. I did end up placing a bid for a house in IL where I live, but nothing happened. No email. Do they only contact you to let you know if they have accepted an offer? The house has been listed since Feb 1st and said all bidders, bid deadline daily. Does that mean that they check the bids daily? I place a bid on this tuesday, but we heard nothing back. So I put in a higher bid at 12:30pm this friday. It was still listed for sale all Friday night, but when I woke up this morning it was no longer listed. It’s not in the bid results or statistics. Does that mean they accepted someones bid or do they take it off after 20 days to relist it? I’m confused because there is no way to check on my bid. When are you able to see the results if it is sold? Thanks for all of your help with this confusing transaction. – Mike
Mike,
Many questions. I’ll take a stab at ‘em.
Yes, they will not notify you of a rejected bid.
When the bid goes to daily, that means that they will review bids everyday and either accept the highest from the prior day or reject all bids.
If the property sold, it should be in the bid results. However, keep in mind that the daily bid means that the bidding closes each day at 11:59pm. Then the next day, the bids have to be reviewed–which won’t be instantly in the a.m. Therefore, if a property has been sold, it will not show up as such until whatever time the review period ends on that day (around noon). There also may be (although I haven’t seen this) a short lag between the time that a sold property is pulled off the available list and moved to bid results.
My best guess is that your property has been sold. Check the bid results again to see if it shows up there.
The bid statistics (as opposed to results) do have a lag time. I’ve seen 7+ days. Generally, they’ll update statistics on Friday for all properties sold through the prior Friday.
One other note: keep an eye for your property even if it has sold. An accepted bid doesn’t equate to a closing, particularly these days. Rob and I have bought quite a few properties after they have sold, fallen through, and then been relisted.
Good luck!
Simple question: from the bid statistics –
you have your list price…and then “net”? price…and then your “purchase” price
Is the “net” what was accepted, and then all your closing costs added, is now the “purchase” price?
Insightful article. My questions are do I deduct from my offer such things as renovation costs(missing fixtures, appliances, possible plumbing leakage, kitchen/bathroom rehab)? I’ve read much on HUD properties but I’m still unclear what the escrow amount is for. Is that money set aside for the buyer to use for repairs? Thanks and can you send me the mgmt company name and contact you used. I want to buy 1 or 2 HUD properties.
Beth
We want to a buy a house for ourselves, I am so scared that are min bid will not beat someone elses. I have fallen in love with a particular house and it closes tonight, can you bid over the list price or bid the list price to get the house, how can I know if that is biding to much??
TN Management – Pyramid Realty does not show the bid statistics on their website. Where else can I get that information?
I think it is safe to say this blog is DEAD…. No one responds to any inquiry. Placing your info on here will only lead to getting spammed. Don’t even bother and the blog owners need to get with it. Update this damn site or delete it!
i’m bidding on a house that is listed for 68,000 and is has been listed since march. What would be a good bid?? thanks Kristine