How To Calculate An Offer For HUD Home In Florida

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We are going to use a HUD Home in Florida for an example to calculate an offer for a HUD home for sale. Although we will be using HUD Home in Florida as an example, the calculations should be good for all HUD homes for sale across the country. 

Let’s say the HUD home in Florida is listed for $100,000 with $3,000 Escrow for repairs. It needs some plumbing repairs. The list price of $100,000 is also the appraised price by a FHA appraiser. What should you bid for this HUD Florida home?

How To Calculate An Offer On A HUD House For Sale

The property has been listed for 12 days. It is beyond the initial 10 days waiting period for Owner-Occupants bidders but it is not yet available for investors to bid on yet because it has not been on the market for 30 days. Only Owner-Occupants can bid on it and it is a Daily Bid process. You will know the next business day if you are the successful bidder on the HUD home Florida.

HUD is only concern with what they "net to list price". HUD does not care what the purchase price is. They only consider how much they net after they pay any of the Buyer's closing costs and the real estate agents commissions.

HUD will pay certain expenses on HUD homes for sale. They will pay your real estate agent commissions up to 3% of the purchase price. They will also pay up to 3% of the purchase price for certain Buyer’s closing costs. Both the real estate commission and the closing costs have to be on the Submitted Offer. You can find more information on Closing Costs Paid By HUD.

It is my experience that HUD will accept offers of 86%-88% of the list price.

Using the $100,000 list price for the HUD home Florida, HUD would accept an offer that would NET them $86,000-$88,000. The $3,000 Escrow for repairs does not come into play on the bidding process. It only comes into play if you are financing the purchase of a HUD home for sale with a FHA mortgage and it still is not part of the "net to list price" calculations.

If you ask HUD to pay your real estate agent 3% commissions and 3% in closing costs assistance, HUD will deduct 6% from your purchase price.

Here is how a bid for the HUD home Florida is calculated:

Bid #1

List Price of HUD home Florida is $100,000

Your Offer is  $100,000

Less Agent Commission (3%) -$3,000

Less Closing Costs Assistance (3%) -$3,000

Repair Escrows of $3,000 is not consider. 

Net Amount to HUD $ 94,000

The net amount to HUD of $94,000 is what HUD will look at, not the purchase price of $100,000.

Bid #2

The list price again is $100,000 and you want to make a bid of $97,000 with no Buyer's closing cost paid by HUD and your real estate agent will get paid 3% in commissions.

Your offer is $97,000

Less Buyer's Agent Commission (3%) -$2,910

No Closing Costs Assistance  

Net Amount to HUD $94,090 ($97,000 less Buyer's agent commissions of $2,910)

Which of the two bids would be the winning bid?

Even though the second bid purchase price is $3,000 less than the first bid, the second bid would be the winner. It NETS HUD $90 more than the first bid. Again HUD does not care what the purchase price is. Your lender may care, but not HUD.

How To Calculate The Lowest Bid That HUD Will Accept For A HUD House For Sale

How do we get to the lowest net amount HUD will accept for a HUD house for sale? What is the formula?

Here is how you do it.

Step 1. Take 86%-88%(You can start with 86%)times(X) the list price. In this example, take $100,000 X .86(86%). You will get $86,000. We now believe HUD will take $86,000 net to them.

Step 2. Add together the 2 percentages for the commission and the closing costs assistance.

In Bid #1, 3%+3%=6%. Deduct that percentage (6%) from 100%=94%. We know $86,000 is the lowest net amount HUD will accept and we are asking HUD to pay 6% in agent commissions and closing costs. That means $86,000 is 94% of an unknown amount. Divide $86,000 by 94%=$91,489. $91,489 is what you need to bid in the first example for HUD to net $86,000 for this HUD Florida home.

In the Bid #2, take 3% for the agent commissions(you didn't ask HUD to pay any closing costs), deduct it from 100%=97%. Divide $86,000 by .97(97%)=$88,660. In this example you can bid $88,660 and HUD will net $86,000.

Remember that other bidders may be bidding against you. If you don't want to take the chance of losing the HUD home for sale, you may want to bid more than what the net amount HUD will accept.

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