As we are all aware bank owned homes and short sales are increasing in percentage of sales of homes. As the number of foreclosures increased so did the inventory. Negotiating with a bank owned home is not the same as negotiating with a seller. Each bank or government runned foreclosure department runs differently.
HUD (which stands for Housing and Urban Development ) is one of the largest ones out there. In some ways they have made the process easier and in others they have made it more difficult. I have sold quite a few HUD owned homes and have worked through some of the kinks of negotiating with them. These are no steadfast rules but general guidelines that I have found that help with the negotiations on a HUD owned home.
One thing HUD does that none of the other banks do, is they acquire an independent appraisal of the house prior to putting it on the market. The appraiser is evaluating the condition of the house and giving an appraisal for the house in the current condition the house is in. or as often stated "as-is' condition.
When the house goes on the market HUD prices the house at that price. That is fair market value for the house in it's current condition. So, when you view a HUD house and are thinking of putting an offer in; check how long it has been on the market. The appraisal is probably a few weeks (at most) longer than the date the house went available for sale.
Know that HUD is figuring on getting close to that number (especially if it has just been listed) as possible. They will concede 3% of the sale price to closing costs for the buyer on financing contracts. So, if you are paying cash I inform my buyers to use that number as a discount on figuring a price for the house.
HUD will negotiate with the buyer. In the past HUD's policy was they either accepted your offer or rejected your offer. They now will offer you a counter offer. Generally that counter offer is the lowest at that time they will accept for the house. I went through one recent transaction where they offered us a counter offer and we re-countered them. They came back with the same number. We increased our number on three more different occasions and they countered at the same number each time. We got the hint...that was their bottom line on that house.
I tell everyone looking at a HUD house to view the sign in sheet. As a Realtor we are asked to sign in that we were there showing the house....I look to see if anyone else has signed in (not everyone does) and when the appraiser was last there. A couple reasons I do this. I want to know if any other Realtor has shown the house recently...this will tell me if I may have another buyer to compete against. The other is because of the appraisal.
HUD has the house reappraised every 120 days. This keeps the appraisal fresh. I recently showed a house and I noticed on the sign in sheet that the appraiser had visited the house the day before we did. That particular home had been on the market about 4 months at that time. My client was mulling over putting an offer in on the home. Two days later she decided to put an offer in on the house. As we were on the phone I pulled up to ensure that the house was still available for sale. Much to her delight we saw the house was still available and that they had just lowered the price $10,000. That was less than what she was going to offer them based on the comparable we looked at in the neighborhood. We bid and won the house.
Upon completion of the contracts I received the signed package and a copy of the appraisal which was dated the day before we put our bid in...By knowing that the appraiser was there and knowing that they change the price accordingly to the appraised value benefited my client this time... she got the house she wanted and at a better price than she had anticipated.
Another client looked at a HUD home that had been on the market for over 6 months. He put in a bid substantially lower than their asking price... They countered him less than he was willing to agree to on the house and he accepted... The longer the house sits on the market the worse it is for HUD or any of the banks. They tend to get more aggressive with their acceptance of bids.
HUD is selling the houses in as is condition. So, if you are looking at a HUD home and are in need of financing; make sure it qualifies prior to you putting your bid in. If HUD has the home as cash only....it will NOT qualify for a loan. if it states conventional then that is the only type of financing it will qualify for. If it says FHA then read the disclosure statement. Most homes that qualify for FHA have an escrow amount( amount needed for repairs to the house to make it eligible for financing). You will need to have that money set aside in a separate account or acquire financing that allows for those repairs to be done post closing.
HUD has made the process smoother in regards to placing offers on a house and negotiating with them. They give you quick timely responses (by the next business day) and taken out a lot of the guessing game from the process...... These guidelines in negotiating a HUD house are examples of situations and not necessarily what is going to happen every time.....But it should help you in formulating an offer on HUD property.
Dave diCecco
Realtor/Broker
www.davedicecco.com
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