Isn’t it tempting? Look at this large, upscale home in one of the most prestigious suburbs of Columbus. HUD tries to sell it for less than 50% of its retail value. Who wouldn’t want to buy this bargain?

More than 15 prospective home buyers tried.

One after the other they submitted offers on this “bargain” deal. One after they other they dropped out. Some did not send in the paperwork, others could not get their loans approved.

Why can’t HUD sell such a great-looking home?  The listing agent received more calls on this property than any other HUD listing. It has been on the market since October 2011.

Why Do Buyers Drop Like Flies?

The reason is simple. This Powell HUD home is full of mold. When it was listed there was mold in the basement. Over the winter the mold spread to the first floor. And now, in spring, mold is everywhere. With no air circulation and high humidity caught inside the house, it will get even worse as temperatures begin to rise.

This house needs to be gutted to the studs – all 3 levels of it.

You can’t buy this Columbus home with bank financing. Lenders won’t even approve a 203k rehab loan.

Most potential buyers submit offers on this HUD home based on its low asking price. They assume that it “can’t be that bad.”

If they win their bid, they look at the house the first time, just to find out that it’s much worse than expected. Actually, the low asking price does not seem so low any more once you see the inside.

Disgusted by what they see, most buyers don’t submit the signed purchase contract – which is due 48 hours after you bid was accepted.

Quite a few owner occupant buyers got their bids accepted on this HUD house. Some even offered more than asking price. Every single time the bank turned them down. Lenders won’t finance properties with mold, even with rehab loans.

Why the HUD Bidding Process Breaks Down

A major reason why this house from hell is still on the market, after 8 months on the MLS and more than 15 accepted bids, is due to HUD’s bid acceptance procedure.

Whenever a buyer cancels their purchase contract on a HUD home (or does not submit the paperwork), the house has to be relisted. Even relisted HUD homes are exclusively available for owner occupants. In this case, the exclusive period is 5 days. After a few cancelled contracts HUD determined that this house is Uninsured and would not qualify for regular FHA financing.

Most of the time another owner occupant will bid and win during the exclusive period. As most owner occupants need bank financing, the devilish circle starts all over.  The buyer discovers that they overpaid for the condition of the house and that the bank won’t finance the deal.

This HUD home can only be closed by a cash buyer!

Unfortunately, HUD’s bid acceptance guidelines prefer owner occupant buyers over investors. They always accept the highest offer. And without fail, the highest offer is always contingent on bank financing.

If nobody closes on this property soon, this HUD home may become unsellable. HUD won’t get rid of it until they accept a cash offer. An offer that’s substantially below their list price.

Please don’t submit an offer on this property, before you see the inside! And don’t even try to get bank financing!

When a new HUD house is listed on the MLS, it is reserved exclusively for owner occupant buyers for the first 30 days. There’s an exception for HUD homes that need more than $5,000 in repairs. They are listed as Uninsured and become available to all bidders after just 5 days.

During the first 10 days HUD is collecting offers, but does not review them until day 11.

After the first 10 days, offers can be submitted daily and will be reviewed on the next business day by HUD.

This process becomes confusing, if the bid deadline falls on a weekend or holiday. HUD reviews offers only on business days. If the bid deadline falls on a Friday or Saturday, then HUD won’t look at your offer until Monday.

This is where it gets tricky.

Weekend Offers on HUD Homes

Let’s say you are interested in a HUD house and the bid deadline was Friday. Maybe you did not have a chance to look at the house until Sunday. You like it and ask your real estate agent to submit an offer on Sunday evening.

You can still see the property on the HUDHomeStore, so you assume it is still available. However, you do not know, if another buyer submitted a bid on the same house before the deadline on Friday evening.

As HUD does not look at offers until the next business day, the HUDHomeStore will not get updated on weekends. Therefore, you do not know, if there is another contract ahead of you from an earlier bid period that is acceptable to HUD.

On Monday, or the next business day, HUD will first look at the offers submitted on Friday. If they can find an acceptable offer, they will take it. The bids submitted on Saturday or Sunday will not be considered in that case.

You will not know until around 2 or 3 pm on Monday, whether someone else got the property.

Most people get confused by the fact, that the HUDHomeStore is not updated weekends. A HUD property may still appear on the website, although an acceptable offer was received.

That’s why HUD added a disclosure on their website, saying that properties are available  “subject to the Asset Manager accepting a bid from an earlier bid period”.

How Should You Deal With Weekend Deadlines?

Submit your offer!

Someone may be ahead of you, and they may get the deal. You won’t know until Monday afternoon. If you do not submit your bid on Sunday, however, you will lose another day and someone else may get ahead of you.

This is especially true, if the exclusive bid deadline for owner occupants expires over the weekend, and the HUD house becomes available to investors.

HUD homes that did not sell for 30 days to owner occupants are either too expensive or need a lot of work. They become prime targets for investors. So, you should expect that an investor will submit an offer, as soon as the deadline expires.

Don’t let weekend bid deadlines confuse you! Submit your offer as soon and as quickly as you can.

HUD will sell any listing to the first acceptable offer. Get in line and you will succeed.

Is HUD getting ready to release their “shadow inventory” or are they just taking advantage of the turn-around in the housing market?

Last week we saw a substantial increase in the number of new assignments from HUD’s asset managers. Every day new inspection notices came in to local HUD listing brokers to prepare HUD properties for sale. This comes after a virtual standstill in HUD listings since the beginning of the year.

You won’t see new listings on the HUDhomestore until mid-April. But they are in the pipeline, and they will hit the market soon. A welcome boost after a drought of almost 9 months.

Will HUD Flood the Market with Cheap Foreclosures?

I don’t think so.

I don’t believe HUD has enough homes in their so-called “shadow inventory” to flood anything or impact the local real estate market.

There were not enough HUD homes available for all the buyers looking for great deals. The general inventory of MLS listings is at a 10 year low. It definitely makes sense for HUD to increase their share of homes sales pool in Columbus.

Why HUD Homes will Sell Quickly

There are many reasons why HUD homes will sell quickly. Many will receive more than one offer and even sell above asking price.

Spring is the best time of the year to sell any home. With low interest rates and an increasing number of buyers looking for a home, prices have started to increase. This is a perfect opportunity for HUD to cash in on their remaining inventory.

Here are the listing stats of Columbus HUD homes as of the end of March 2012. There are only 74 HUD homes available in Franklin and surrounding counties (only 45 in Franklin County).

Franklin  45
Delaware  7
Licking  9
Fairfield  8
Pickaway  0
Madison  1
Union  4
TOTAL  74

Update: In the past 5 days more than 50 new HUD homes were listed in Ohio, that’s a 10% increase from a week ago.

The Columbus Board of Realtors reports a strong start of the year with both home sales and home prices increasing more than 5% as compared to a year ago. They also report that the inventory of homes for sale is down by 30% from last year. A clear sign that we are on our way to a new sellers market.

Where do you Find the Best Deals?

Blacklick, Galloway and Grove City have the most HUD homes for sale in Central Ohio. Many of these homes are in good condition and listed as insured or insured with escrow. This means they will most likely be purchased by owner occupants.

Only 35% of all HUD listings are available for investors, many of them are uninsured.

As the overall inventory of MLS listing has also shrunk to 11,000 (a 10 year low), new HUD listings are a welcome addition to the improving Columbus real estate market.

Get ready to submit your offer! The HUD inventory will improve soon!

Despite HUD’s preference of owner occupant buyers and long, exclusive listing periods, HUD homes are hands down the best deals for real estate investors. Recent closings have shown that some investors get low ball HUD home offers accepted on a regular basis. Many HUD houses sell to non-owner occupant buyers at substantial discounts just 30 days after hitting the market.

Let’s look at an example. The HUD house on Yagger Bay Drive in Hilliard OH, just went in contract for $107,551. It was listed for 30 days at $154,200. The list price was too high, therefore, the house did not get a single offer from owner occupants and became available to all bidders after 30 days.

After the exclusive listing period expired, an investor came in with an offer that was less than 70% of the list price. The list price of HUD homes is identical to their as-is appraised value. His offer was accepted immediately.

After only 30 days on the market investors can buy HUD properties at a discount of 30%!

What’s a Good Bidding Strategy for Investors?

A good strategy for investors is to track HUD homes that sit on the market for more than 25 days. If these Columbus houses didn’t get an offer by owner occupants, HUD will very likely accept a reasonable investor bid.

What’s reasonable?

It depends. 60% to 70% of the as-is value is usually a reasonable offer. HUD will look at the internal BPO the listing broker submitted to HUD before the home was listed. If this BPO is in line with your offer, HUD will likely accept it.

Initially, HUD must list any property for its as-is appraised value. That’s the value an FHA appraiser assigns to the house. Depending on the appraiser, who may not have as much experience as the listing agent, that value might be too high. If that happens, you end up with an overpriced listing that won’t attract any offers.

On the other hand, if the appraised value and the initial listing price are too low, you will see a stampede of owner occupants submit bids. This typically results in a bidding war and a final contract price that’s higher than the list price.

Investors don’t have a chance to get in on under-priced HUD properties. They will always be snapped up by an owner occupant.

A Surprising Strategy for Real Estate Investors

This may seem like an oxymoron, but investors stand a better chance to win a low ball bid on a HUD home that’s overpriced than one that’s listed below market value.

If you are an investor, I recommend you look at HUD homes that seem expensive. Watch them for 25 days to see, if an owner occupant submits an offer. If a HUD house is still on the market on day 25, it’s time to take a closer look. If the house meets your criteria, get ready to submit an offer around 35% below list price. It has to be submitted on day 30 or other investors will beat you to the deal.

What About Other Government Owned Properties?

It appears that neither Fannie Mae nor Freddie Mac accept aggressive offers within 30 days. Their discounts are rather marginal and not good enough for investors.

Many bank-owned properties are overpriced. Most banks will look at lower offers, however, by overpricing their REOs at they probably scare away most investors.

If you want to work with an agent that can help you win these competitive investor offers, please submit the form to the right. We will get back to you quickly.

Condominium developments are very uniform. Most units are similar or even identical. This is part of their appeal. A well designed village makes tenants and owners feel at home, and guarantees a high quality of life.

Lifestyle Communities is the master of building townhome-style condominiums at an affordable price. Their developments are scattered all over Central Ohio suburbs. Lifestyle condos come with features, such as fitness clubs, swimming pools, volleyball courts, and some of their villages even feature a pub.
With so many Lifestyle condos around, it’s no surprise that we found 2 almost identical condominiums available for sale. Both are end units, come with 2 bedrooms, and have a similar asking price.

The first one is located at Preserve Crossing off Morse Road in the Gahanna area. It comes with a garage. It is HUD-owned and needs cosmetic improvements. However, it is listed as insured, so you will be able to buy it with FHA financing.

The other condo is located at Hayden Falls in the Dublin/Hilliard area. This one has been completely remodeled and is in pristine condition, ready for you and your family!

As you can see from our pictures, the two condos are almost identical. It may surprise you that the HUD condo, that needs a little bit of work, is listed for $8,000 more than the Dublin townhouse that has already been upgraded.

Preserve Crossing is a more expensive neighborhood. Lifestyle condos for sale start at $110K and go up to $150K. They all come with garages.

Hayden Falls condos on  the other hand start at $100K and go up to $130K.

Compare 2 Condominiums for Sale

3879 Preserve Crossing Blvd, Columbus OH
Asking Price: $106,000
Year Built: 2006
Sq Footage: 1,190
Bedrooms: 2
Bathrooms 1/1

HUD owned, FHA insured.

5537 Bow Falls Blvd, Dublin OH
Asking Price: $98,750
Year Built: 2005
Sq Footage: 1,280
Bedrooms: 2
Bathrooms 1/1
Schools: Columbus

Private Sale - Many Upgrades!

Which of the 2 Condos would you Pick?

You probably know that condos are harder to sell than single family homes. That’s why Lifestyle rents some of their units, in addition to offering them for sale. You can rent similar townhomes from Lifestyle between $1,000 and $1,200 per month, dependent on its exact size and whether you get a garage.

You will pay less for a mortgage, if you decide to buy. At current interest rates (4%) the monthly payment on a $100,000 condo (including taxes and insurance) should run you $600 to $650 a month. So that’s a significant savings off the rent.

To be fair you may have to add $100 for condominium fees, if you buy. But you will still save at least $300 per month, or $3,600 per year.

If you want to see one of these condos, simply click on the pictures. They are linked to the property website with the listing agent’s phone number.  You can also submit your information in the box to the right, and an experienced real estate agent will get back to you promptly!

As of February 2012 all offers on Fannie Mae owned properties must be submitted online on the HomePath website. Fannie Mae had a pilot program running in select states. Due to its huge success, it’s now available nationwide. You can submit offers on any Fannie Mae owned home on their website.

HUD homes have been sold by online bidding for many years. In this day and age it makes a lot of sense to use the online auction process. It is much easier for buyers and real estate agents alike.

One of the biggest benefits of online bidding for HUD homes is that you don’t need to submit the full contract package until your offer has been accepted. There’s no need to waste paper to prepare a purchase offer. Instead your agent can log in and enter the offer on the website.

Only after HUD accepts your offer, do you have to sign the original documents and submit them to HUD within 48 hours.

How to Submit an Online Offer for Fannie Mae Homes

All offers have to be submitted by a licensed real estate agent. A buyer cannot directly submit an offer.

Unlike with HUD homes, the agent does not have to get a special Fannie Mae license. You can simply register before you submit the offer for your client.

Every Fannie Mae home listed on HomePath has a Make an Offer button. Your agent can click this button to submit your offer. She has to go through a number of steps, such as filling an online purchase offer form.

Once this form has been completed and reviewed, your agent has to upload 2 or 3 documents:

• the Sales Contract.
• the Fannie Mae Addendum, and
• the Owner Occupant Certification (not required for investor offers)

Unlike with HUD home offers, Fannie Mae requires these documents when you type in the offer. They accept standard purchase contracts provided by your real estate agent. The Fannie Mae Addendum and the Owner Occupant Certification can be downloaded from Homepath.

Once signed, your agent will scan these documents (PDF files) , and upload them with your offer.

HomePath allows agents to manage offers online. This means that your realtor can revise offers that have been previously submitted, e.g. to increase the purchase price, if more than one buyer is interested in the house. In that case your agent needs to upload new documents, as well. Offers can also be withdrawn (rescinded) online.

If more than one offer exists on a property, you may get invited to participate in a Multiple Offers Round. This is like a mini auction, where the listing agent tries to get the best and final offer from all interested buyers.

HomePath provides support and training, including video tutorials, to help you with this process on their Online Offers Support Page.

You can also download a step-by-step guide and register for a training webinar.

Fannie Mae homes are very desirable for buyers. They have a good reputation for their quality. As Fannie Mae targets owner occupants, they remodel some of their homes before they put them on the market. That’s why they get higher purchase offers. Most buyers like homes that are move-in ready, as they don’t want to deal with repairs and rehab loans (like you often have to with HUD houses).

It may sound strange that a HUD home that’s offered below market value could actually hurt the buyer. Unfortunately, that’s the case. Let me explain …

Initially, HUD homes are listed at the value of the FHA appraisal that HUD orders before they put a house on the market. The listing agent may offer a price opinion (BPO) based on current market conditions and recent sales, but does not set the asking price.

Although appraisers should consider the same information, sometimes they are off. On rare occasions they come in way below the market value of a home for sale.

When that happens the house could become a true bargain and attract a lot of attention. We see it all the time. Real estate agents and buyers flock to these properties during the initial 10-day exclusive bidding period. Many submit offers and create a buying frenzy.

There are 2 major reasons why underpricing of HUD homes in Columbus may hurt prospective buyers.

Bidding Wars

The increased interest in a HUD house offered for less than its real value leads to bidding wars.  Buyers bid more than list price, when they submit an offer.

In many instances the contract price even goes beyond the market value of the property. That’s good for the seller (HUD), but bad for the buyer who wanted to find a deal.

Bidding wars have left many buyers in the dust, as they could not afford to compete with ever increasing offers.

Extra Cash at Closing

When you offer more than the appraised value on a HUD property, you create an unexpected problem for yourself.

If you overbid on a HUD home, FHA will base your loan amount on the existing FHA appraisal of the HUD home, not your purchase price. FHA will lend 96.5% of the as-is value  listed on the HUDhomestore. You have to bring the difference in cash to the closing. FHA does not allow a new appraisal.

All of a sudden your down payment has increased significantly.

An Underpriced HUD Condo

Here’s an example: the free standing HUD condo shown at the top of this article was priced at $65K, its FHA appraised value. Broker price opinions by various real estate agents came in around $75K.

This HUD home was substantially underpriced. The winning bidder offered $75K, $10K more than list price.

Once the contract was signed, the buyer discovered that FHA would only loan $62K on the house. The buyer had to come up with the difference.  That’s $10,000 more than they originally budgeted as a down payment.

What to do, if you Overbid?

You have 3 options, if you overbid on a HUD home:

1. Find a Different Lender. Any lender, except of FHA, will order a new appraisal, which will probably come in close to your purchase price. Dependent on the type of loan (VA, USDA) your down payment may be more or less than on an FHA loan. Be aware that you may run into issues with your new lender, if the HUD house is listed as insured with escrow and needs repairs.
2. Pay the Difference in Cash. If your purchase is really a good deal, it may be better for you to pay the difference in cash. FHA allows you to get money for the purchase from family members. Keeping the mortgage lower will also lower your monthly payments.
3. Get out of the Contract. This is my least favorite option, although it’s the one most buyers pick. You may get your earnest money back, if you can’t get financing. Your real estate agent has to work hard to help you get the refund.

Finding an underpriced HUD home may not be the winner you hoped for. However, if you are aware of the issues we discussed in this article, you can prepare your contingencies. And you may get a really good deal, after a few other buyers had to get out of the contract due to financing issues.

As the number of HUD homes, Fannie Mae, Freddie Mac and other bank-owned properties has dropped substantially since the beginning of the year, we are all wondering what happened to the so-called Shadow Inventory. That’s all of the foreclosed homes that are owned by banks or soon to be owned by banks that are not listed for sale.

In early 2011 it was rumored that the Shadow Inventory was huge and that it will tear the real estate market to pieces.

2011 is over and the real estate market is improving. REOs and foreclosed homes did not flood the market as predicted. According to a recent report by CoreLogic there’s only one foreclosed home in the “shadows” for each home that’s currently listed.

It appears that the Shadow Inventory does not affect the Columbus market. Many HUD and bank-owned homes sell for asking price or above. The market is not flooded with foreclosed homes and the total number of HUD homes for sale has dropped significantly.

Columbus Real Estate Stats

Let me share a few data to show that the Columbus real estate market is very active and alive, as we enter the new year. Below you can see the current number of government-owned, foreclosed homes in Central Ohio.

HUD Homes: 71
Fannie Mae: 233
Freddie Mac: 105

Here are more indicators of a vibrant real estate market:

The inventory of homes for sale on the Columbus MLS dropped by 27.5%  from 17,471 to 12,675 (within one year – Nov 2010 to Nov 2011).
Pending contracts increased by 37.4% from 1,341 to 1,843.

If the shadow inventory does not show up soon, we are actually heading in a sellers market.

A couple of years ago HUD made the results of all their online auctions public. You could simply go to their website and see how much other buyers were offering on HUD homes in Columbus and throughout the country. You could even see bids declined by HUD and who submitted them. That all went away when the HUDHomeStore.com webportal went online in 2010.

In their latest update to the HUDHomeStore.com bid results are once again available to the public. At least for a limited time and with some limited information.

Now you can see the actual purchase price HUD accepted on a property.

As bidding stats have not been published for almost 2 years, this is a welcome change to HUD’s website. Bid results of HUD homes are very useful when you develop your bidding strategy. Bid results help you determine which discounts are acceptable to HUD and how much you should offer to get a purchase contract accepted.

You can find the Bid Results Tab is in the upper right corner of the HUDHomeStore,  just beside the FAQ tab. It lets you search recently accepted bids, by case number, state, county, city, zip, and street.

What kind of information can you find?

Most importantly, you will see the Net to HUD. That’s the amount HUD gets out of the deal and does not include realtor commissions and closing costs. You do not see the purchase price and whether a real estate agent reduced their commission.

You will also see, whether an owner occupant (O/O) or an investor (INV) purchased the HUD home, as well as the bid date, the open date and the date, when the offer was accepted.

Finally, it shows the name of the brokerage representing the buyer.

The Bid Results are only displayed for 2 weeks. You have to be quick, if you want to see how much homes are selling for.

Bid Results of Marysville HUD Home

The image above shows the bid results of a Marysville HUD house that was offered at a huge discount as compared to the retail values of other homes in the area. This house needed a lot of repairs, including mold remediation.

It was listed for only $68,000, while similar homes sold for twice as much. Needless to say, this listing generated immediate buzz which resulted in more than 30 showings in the first week.

As you can see from the bid results, this HUD house went in contract for $83,660 Net to HUD. The actual purchase price could have been as high as $92,000, if we figure in 6% commission to agents and approximately 3% in closing costs.

Do you need help with the Bid Results form?

Not sure what to offer on a HUD home?

Fill in the form to the right and an experienced, HUD certified, Columbus real estate agent will get back to you within 24 hours.

In half of the US you can buy HUD homes with only $100 down. Unfortunately, Ohio is in the other half.

HUD just reinstated the $100 down program in 2 of their 4 national regions. It appears that they picked the ones with the largest inventory of homes.

HUD homes sold really well in Ohio during the past 12 months. Our inventory is very low. The number of HUD listings decreased from more than 400 HUD homes at the beginning of the year to around 100.

The $100 down program is one of the best incentives for owner occupant buyers. Instead of the regular 3.5% down payment, you only need to bring $100 down on FHA loans. In addition, HUD contributes up to 3% toward your closing costs.

I believe that we won’t see the $100 down program in Ohio anytime soon. We probably don’t need it to sell these homes, anyway.

However, if Columbus home sales continue to dip in November and December (as they usually do), HUD may reconsider and offer this great incentive to help buyers get into a HUD house with only $100.

There are 2 other incentives that make HUD homes more attractive than other foreclosed properties, even without the $100 down payment program:

• HUD houses are offered with repair escrows when you finance with an FHA loan. You don’t have to get a rehab loan to cover minor repairs of less than $5,000. This will save you time, as regular FHA loans tend to close much faster than 203k rehab loans.
• HUD homes are appraised for FHA financing. This means that you don’t have to pay for a separate appraisal. This will save you $300 to $400 and cut the time for loan approval by at least a week or two.