Making an Offer on a HUD Home

Any qualified buyer can make an offer on a HUD home through the services of a registered HUD real estate broker.  A qualified buyer is one who has the means and the ability to purchase a HUD home.  As stated before, this would be a buyer (whether it is a first time home buyer, teacher, police officer, investor, or non-profit organization) that is pre-approved for a mortgage (or has the verifiable amount of cash to purchase the home), has the required earnest money (see below), has the ability to close the transaction within 30 to 60 days, and is utilizing the services of a HUD registered real estate broker (click here to find a HUD registered real estate broker).

The process of buying or offering on a HUD home differs from a typical residential real estate transaction.  In residential real estate, the buyer finds the home he or she likes and the agent presents an offer to the seller.  The seller may counter the offer and this process continues until 1) the buyer and the seller find mutually agreeable terms to close the deal or 2) the buyer or the seller rejects the terms and both move on with their lives.

There are no negotiations between buyer and seller when buy a HUD home.  HUD homes are sold by a sealed bidding process where the highest netting bid (i.e. after all costs are paid, the net amount that HUD will receive for the home) wins the sale.  However, HUD reserves the right to reject any and all offers.

There is no haggling about price because everything is spelled out in black and white when making an offer.  If the offer is the highest grossing offer for HUD, they generally accept it.

HUD may pay certain buyer's closing costs.  These costs may be designated by the buyer and might include the loan origination fee, discount points, appraisals, surveys, and title reports.  No portion of the amount of paid closing cots will be paid to the buyer if unused.

Should an owner-occupant bidder submit multiple offers on several properties, HUD will consider the offers as follows:  If the buyer is the sole acceptable offeror on a single property, that bid will be awarded without consideration to other offers.  Otherwise, the offer that provides the greatest net return to HUD will be awarded.  Should multiple offers be made on a single property (assuming that they have not been cancelled), the offer with the highest net amount to HUD will be awarded.

Before any offer is submitted to HUD, the buyer is required to deposit with the HUD registered real estate broker an earnest money deposit.  An earnest money deposit is money presented with an offer on a home that shows that the buyer is serious about purchasing a home.  

HUD only allows the earnest money to be either 1) a cashiers check or 2) a money order. If the purchase price is $50,000 or less, the buyer is required to deposit $500.  If the purchase price is greater than $50,000, the required deposit is $1,000.  If a buyer's offer is rejected, the earnest money is returned in full to the buyer. 

Should a buyer have an accepted bid and not be able to buy the home, HUD will return the buyer’s earnest money deposit on the following conditions:

For an owner-occupied buyer:  The entire deposit will be returned if it is requested in writing and adequate documentation is included when 1) there has been a death in the immediate family, 2) there has been a recent serious illness in the immediate family that has resulted in substantial medical expenses, income loss or adversely affecting the buyers ability to purchase the home, 3) there has been a loss of work by the primary wage earner or substantial loss of income at no fault of the buyer or 4) there is good cause as determined by HUD.  On an uninsured sale, the buyer forfeits 50% of the deposit if the purchaser is unable to obtain a mortgage, despite good faith efforts from the buyer.

However, the buyer forfeits 100% of the deposit in those instances when no documentation is submitted, documentation fails to provide acceptable cause for the buyer’s failure to close or where documentation is not provided within a reasonable time following contract cancellation.

For an investor:  The entire deposit is forfeited, regardless of reason unless the home is an insurable property and the purchaser is determined by HUD to be an unacceptable buyer (in which case the investor loses 50% of the earnest deposit).

Before deciding on which home to bid on, it is important for a buyer to sit down with his or her qualified real estate broker and discuss a strategy to buy a HUD home.  For example, HUD may pay up to 3% of the bid price towards the buyer’s closing costs (in Arizona).  However, this may affect your net bid amount (as discussed above). 

All sales must close within 45 to 60 days.  Closings later than the established closing date require an approved extension and may (most likely) will incur a fee.  Extensions may be granted at the sole discretion of HUD or its authorized agent.

A buyer may not make any repairs to the property prior to the close of escrow.  Furthermore, the purchaser is not authorized to move any of his or her personal effects into the home prior to the close of escrow.