Recently I helped a buyer client submit a successful bid on a HUD condo. Hud homes can offer a great deal for the savvy buyer. I’ve seen HUD properties sell for over 20% below market value. But the process of buying a house though HUD is quite different than a traditional purchase. And HUD homes are sold “as is”. HUD will not make any repairs or improvements prior to sale.
Although HUD homes are listed on the MLS with a traditional listing agent, all offers and paperwork are sent to HUD directly through the HUD Home Store website. The process is similar to an auction, where HUD will review the bids each day and choose the highest offer. The procedure can be a little confusing so I’ve outlined my recent experience.
To start, in order to bid on a HUD home, you must use a HUD registered real estate agent. An individual buyer can not place a bid without an agent. Any licensed agent can place a bid, but they first must register with HUD and create an account.
To find a home, an individual can search www.hudhomestore.com or their agent can search on the MLS. Once you find the home you are interested in, you will need your agent to schedule and attend the showing with you. HUD doesn’t allow anyone to enter the home without being accompanied by a real estate agent. All HUD homes are vacant, so getting an appointment is very easy.
HUD is very interested in offering homes to owner occupants, which is why HUD uses listing periods to offer their homes. An owner occupant is defined as someone not owning a home in the past 2 years. If an owner occupant wins the bid, they must live in the home for at least 1 year. Selling or renting the home during that first year will result in severe penalties.
Listing Periods:
HUD homes are available for sale to different buyer during different listing periods.
Exclusive: Bids may be submitted only by owner occupant purchasers, which HUD defines as owner-occupant purchasers, qualified nonprofit organizations and government entities.
(a) Insured properties (15 days): Insured properties not in a revitalization area begin their listing periods here. For insured homes that are single-unit properties in a revitalization area, the Exclusive period follows the Lottery period.
(b) Uninsured properties (5 days): All uninsured properties enter this 5-day Exclusive period after the Lottery period.
Extended (up to 180 days or open-ended): At the conclusion of the Exclusive Listing Period, should a property remain unsold, all general public bids (including Investors) may be submitted daily.
Lottery (7 days): All uninsured homes start in the Lottery period. The only insured homes that start in the Lottery period are insured single-unit properties in a revitalization area. These homes are open to Good Neighbor Next Door Participants, non-profits and government agencies only. Usually located in a revitalization area.
Property Types:
Properties are also classified based on their condition:
Insured Properties means the property meets FHA 203(b) financing requirements; no obvious repairs necessary to insure an FHA loan to buyer.
Uninsured Properties means the property requires extensive repairs exceeding $5,000. These properties are eligible for an FHA 203(k) mortgage.
Uninsured properties are not eligible for FHA insured financing. This often indicates the property does not meet Minimum Property Standards (MPS) and that estimated repairs required to meet MPS exceed $5,000. Purchases must be made by FHA 203(K), Conventional Financing, or Cash.
Submitting The Bid:
Once the property is chosen, go to the HUD Home Store, select the property and choose the “submit an offer” button.
Your agent will enter their NAID Type and NAID number, which is the number that identifies the brokerage company the agent is licensed with. They also need to enter their state real estate license number. The system verifies the information entered and brings up the next screen which is the offer contract. Here the agent enters the purchaser info, offer price, type of financing, agent commission amount, purchaser type, and the Buyers Select Closing Agent information, which is basically the buyer’s attorney who will act as the closing agent and hold the escrow check until closing. It is best to have all of this information ready to go, because the agent only has 15 minutes to complete this section. Once this page is completed, the offer is submitted and will be reviewed by HUD at the conclusion of the exclusive period or the next morning if in the extended period. The house will stay on the market until a bid is accepted.
In the next post I’ll discuss what needs to be done once your offer has been accepted.
