You have found your dream home and it is a HUD foreclosures. You have done a walk-through of the HUD house and it seems to be in good shape, just a few minor repairs.

Unfortunately, you have already made a major mistake. Your real estate agent, who is your uncle, has never sold a HUD home foreclosure. He does not have any idea how much you should offer for a HUD foreclosure. Your uncle is not a lone; most real estate agents are not experienced in HUD foreclosure listings.

First, a little about what you can and can't do when buying HUD home foreclosures:

1. You cannot buy HUD foreclosures without a real estate agent. A real estate agent does not have to take special training to sell HUD home foreclosures. I personally think they should have mandatory training. An inexperienced real estate agent can cost you thousands of dollars in mistakes. Again, you have to use a real estate agent to buy HUD foreclosure listings.

2. You do not have to offer the list price. HUD home foreclosures are listed at FHA appraised 'market value?. It is my experience HUD foreclosures are listed somewhere within 20% of market value either too high or too low.

3. If the HUD foreclosure listing is new on the market, you will not get it for 50% off the list price. You are wasting your time on a low ball offer. But, if the HUD house has been on the market 3 or 4 months then a low ball offer might work.

4. HUD will pay up to 5% of the purchase price for buyer's closing costs. The amount of buyer's closing costs you want HUD to pay must be on the initial bid form.

5. HUD will pay up to 5% of the purchase price for real estate agent commissions and it also must be on the initial bid form.

Ok, so what do you offer? The bidding process for HUD foreclosures is just a numbers game for HUD. They don't care about what you offer; they look at what they net from the sale of HUD foreclosure listings.

If the HUD home foreclosure is new on the market, HUD will usually accept 85% to 88% of the list price net to HUD.

For example, the HUD house that you want to make a bid is listed at $100,000. Your uncle, the inexperienced agent, will be paid 5% of the purchase price for commissions and you want HUD to pay $3,000 of your closing costs.

What do you offer so that HUD will net 88% of list price? You need to take what you know and back up to the figure you don't know, the offer price.

You know what you want HUD to net and what costs HUD will pay. First, you want HUD to net $88,000 ($100,000 X 88%). You want HUD to pay $3,000 of your closing cost and pay your uncle, the inexperienced agent, 5% commission.

You take $88,000, add $3,000 closing costs, and you get $91,000. You still have to figure in your uncle's, the inexperienced agent, 5% commission. $91,000 is the figure without the agent's 5% commissions, or it is 95% of an unknown amount. You divide $91,000 by .95 and you get $95,790. That is the amount you can bid and HUD will net $88,000 with HUD paying $3,000 closing costs and 5% Buyer's agent commissions.

How did I determine HUD will accept 85% to 88% net of list price? HUD publishes Bid Results and Bid Statistics on all of their HUD foreclosure listings. Bid Results are the accepted bids and Bid Statistics are all bids including the ones that weren't accepted. I am a CPA so I enjoy working with numbers. I also have brought HUD foreclosures for myself to fix up and resell. I want to buy HUD foreclosure listings for as cheap as possible.

This example is for HUD home foreclosures that are new on the market. It is a different ball game if HUD houses have been on the market for 2-4 months.

You also need to remember whoever bids the highest net to HUD gets the HUD home foreclosure.

What to offer for HUD foreclosures is not hard to determine if you or your real estate agent have the experience or knowledge of buying HUD home foreclosures. It is just a numbers game to HUD and it is easy to figure the numbers that HUD will accept for HUD foreclosure listings.

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