Immediate concern

Tomorrow at 8:30 I go to make my first offer.

It is a bank owned property. The place has been on the market for 8 months and not sold. They recently lowered the asking price since according to the agent nobody had made an offer yet. I am offering 16.5 with a 7 day close, all cash. The asking price is 30,000 (40,000 yesterday). I can go as high as 24.5 and still ensure (using conservative estimates of improvements as this is my first time) that I make at least 5k cash (after a home equity loan) and still maintain 15K equity in actual equity on the house AND cash flow between 200 and 400 a month (depending on section 8). Good deal right???


What stipulations do I put into a normal real estate (contract (through a large real estate brokerage) to ensure that I am able to back out if I find things in the walls/foundation/roof that I did not expect?

I am using the listing agent in hope that he will be motivated to be done with the property, make double commission, and hook me up with future bank properties.

Someone please let me know about anything specific. I know this is a little late to be asking, but I decided to jump in today and after contacting the agent I was unable to get in touch with my mentor/cousin.

Thanks for the wisdom as always

It sounds like you are approaching this the right way. I will tell you that REO properties usually require you to use the lenders contracts. You can submit your offer on the standard realtor forms of the broker, but even if they accept your price they will require you to use their purchase contracts. They don’t usually let you have contingiences so if anything major comes up and you back-out, you may loose your earnest money.

Wish you the best. Making offers is a good thing!

Thanks… I wll check this again before morning, but at this point I feel like having an inspectors clause will allow me to back out if I find anything really damaged that I didnt know about. I will check with the agent in the morning, but it seems this is going to be a great first deal.

If you can think of anything that will give me better leverage if I want to back out please let me know.

As always I appreciate the help.

What happened Tedferret?

Were you able to put in a clause as you desired?

Well I went i this morning and made an offer for 16.5 .

The offer gives me an inspection period, so assuming there is something even slightly wrong with the house (there is) I can get out of the deal.

I love this stuff. Can’t wait to get my feet a little more wet.

In addition to the inspection provision in the contract, there may also be a “Sold As-Is” addendum. Either the contract provision, the addendum, or both could have language that tells you what your inspection period is and whether the inspection report must find defects requiring a minimum repair cost for you to either renegotiate the contract price or to declare the contract null and void.

If you have inspection language in both places, then the addendum supercedes the basic contract provision if there is a contradiction or discrepancy between the two.

How flexible is the inspection contingency in your paperwork?

I know they say banks are generally slow in responding to offers, just wondering if you received a response back yet or not.

BTW, does anyone know the formula used for HUD homes and the price they will accept. I’m looking at a HUD home and the agent that has the house says HUD has some type of formula for the price they will accept on a home and as the days on the market grow the formula steadily decreases the “magic number” on the price they’ll accept. I doubt this house will last for long (if it isn’t gone already) so I’m just trying to figure out if others have made offers on HUD homes and if so, how low can you go?

I don’t know the formula you’re talking about, but if the house is passed the HUD bid deadline and hasn’t been sold, your agent should be able to see the amount of the offers that were rejected. At least, we can in my area.

Tom is correct.

I, however, treat a HUD just like all others. If it falls into my criteria, I bid what I need to bid to make a profit. If the bid is accepted, great, if not it wouldn’t work for me anyway!


The rumor of a fomula seems to persist, but its really tough to see how long the property has been truly on the market becuase it can appear and disappear. A great example is aproperty I got tee’d up to bid on as it had fallen out of escrow once. A owner-occupied bid came in hours before it opened up to investor sand it was sold. Then about 60 days later it reappeared so I dropped my price by 15% and HUD took it. After 6k in repairs I have it on the market for about 1.9x of what I paid and had 4 showings (2 very solid ones) in 3 weeks with 1 offer (not a great one).

In end, paid what you need to make your numbers work. In this case, I figured after two botched closings, HUD would be motived to move.

Likewise, I have bid on stuff that has sat for a month or two and they will not give much ground other than say 8 or 10 percent.

I’ve had the best luck(i.e. closed on 2 deals in 18 months) with stuff that has sat for a long time. I’ve bid on others, but if they won’t come down I just let it pass to someone else.

the formula you refer to is on the boards. do a search there & i’m sure you will find it. :bobble

There is a long discussion somewhere in the forums that tells you how HUD determines the minimum acceptable bid. It all boils down to the following

  • During the owner occupant simultaneous bid period, the minimum net acceptable bid to HUD is about 94.7% of the list price.
  • During the initial “all purchasers” simultaneous bid period, the minimum net acceptable bid to HUD is about 92.6% of the list price.
  • Once the property enters the “Daily, All Purchasers” bid period, HUD “may” reduce their list price at two week intervals, which consequently reduces the minimum amount needed to meet 92.6% of list price.

After the property has been on the market 45 days, HUD will do one of the following

  • take the property off the market for awhile and start over with a new owner occupant bid period at the original list price if there was a lot of interest in the property or at a reduced list price if few bids were submitted, OR,
  • leave the property on the market for all purchasers but become more flexible in accepting less than full price offers.

I have found the above to hold in my market under normal market conditions. These are not normal times. With the number of foreclosures doubling every six months, HUD will probably be a lot more generous in setting their minimum net acceptable bids.

If you want to check out some real HUD bids and what was accepted and what wasn’t check out this list for CT: (Select all cities and hit search)

It will give you a good idea of what they take and what they don’t.

even though this is now a hud forum…

As I said asking was 30k, I offered 16.5. They came back with 28.5. I went back with 20k. I want the property under 25k to be really safe with this first one. By the way if I get this property I can put it on the maket for 80k and it would be one the cheapest houses in the zip code even though it will be 3br, 2ba w/new everything. I anticipate a fast sale.

I put an ad on craigslist in search of an agent willing to offer comps for eventual sales and found a few people. One of them happens to be a mortgage broker also, so I killed 2 birds with one stone. She can take care of my mortgage when I buy a property and then take care of selling it when I am done. Good deal for her and good deal for me. I’m waiting to hear back from the bank. Wish me luck.

I never even thought to do a search on the site regarding the “magic formula”. Thanks for the info everyone.