All HUD properties are foreclosures where the original loan was a FHA loan backed by the government. The properties are owned by the federal government and managed by Housing and Urban Development. These properties come in a variety of conditions but are always sold “as is”. In order to get a list price, HUD hires an appraiser to determine value in “as is” condition. This is done in consideration of a new FHA loan. If there are certain deficiencies like no carpet, broken windows, plumbing issues and such; the FHA appraiser will determine a value to repair those items. If the amount is over approximately $5000 then the house will be listed as uninsurable and will not be eligible for a new FHA loan. The exception would be a FHA 203K loan provided there is no structural issues. If the repair amount is less than about $5000, the appraiser will list those items and require an escrow amount equal to the repairs.
The list price is the FHA appraisal amount. This is important to note, because if the buyer bids above the list price and is obtaining FHA financing, they will need to bring the difference to the table. If the buyer is obtaining conventional of VA financing, then a new appraisal will be ordered. Provided the conventional or VA appraiser can find comps to justify a higher sales price the sale will continue as normal.
In a strong seller’s market like we are in today it is not uncommon to see buyer bid above the asking price. If a lot of buyers are interested in a certain property, it may very well sell above list price by several thousand dollars.
HUD always looks at the net to seller amount so if the buyer is asking for closing costs this will lower their net bid by that amount. I have had buyers ask if they can raise the sales price and then ask for closing costs—making their net bid higher. Remember, if the buyer is going to obtain a FHA loan then the buyer will need to bring the amount above the list price to the table. Why not just have the buyer pay their own closing costs and write a clean contract.
If you are thinking about buying a HUD property, please contact me. I specialize in these types of properties and know how to get them closed. Sandi Walker 405-213-2992 or visit my website, www.sandiwalker.com