Purchasing a HUD Home

Department of HUD Logo - Copyright HUD

Along with the rise in bank-owned foreclosures has come a rise in properties owned and sold by HUD.  HUD is the Department of Housing and Urban Development, an executive branch agency run by the federal government.  HUD is the department that runs the Federal Housing Administration, better known as FHA.  Any recent buyer or seller of real estate will surely attest to the importance of HUD and FHA in these tough real estate times.

When a homeowner with an FHA-backed loan defaults, the house is typically taken back by HUD, not the bank that serviced the loan.  This really doesn't mean much to potential buyers, but it is important to work with an agent that understands how the HUD process works.

Dealing with HUD is quite a bit different than dealing with a traditional seller, and is even different than dealing with one of the large banking institutions (i.e. Wells Fargo, Bank of America, Citi, etc..).  The most notable difference is that HUD accepts offers based on a bidding system.  This leaves very little room for negotiating, and typically forces buyers to offer their strongest bid right away.

Another major difference with HUD properties relates to pricing.  A common tactic used by HUD is to under-price a home.  A buyer may think that, at the list price, they would get a great deal.  However, if the home is under-priced, it will often times sell well above the list price.  This is important because if the buyer really wants the home, they may have to offer above list price.  In today's tough market, it is very hard to convince buyers that they should be offering above a list price.

There is one area where HUD properties are very similar to ordinary foreclosures.  There are certain things that are non-negotiable with HUD.  For example, if the water is turned off at the property (which is typically the case for HUD properties), the cost is borne by the buyer.  In a normal sale, you might be able to negotiate to have the water turned on at the seller's expense.  When dealing with HUD properties, these kinds of costs are almost always paid by the buyer.  This is something to keep in mind when determining how much to offer.

There is a lot more that could be said about HUD properties, but I think this is a good start.  And as always, if you have specific questions please reach out to me.  I have dealt with several HUD properties and I can help to seamlessly guide you through the process.