People hear stories about friends and co-workers winning bids and getting foreclosures on the cheap. So, they’re naturally interested, and think that might be a good path for them to go. But when they ask questions or go online to try and figure out how you actually bid they get really frustrated. And then sometimes after they make losing bids on 3-4 houses they get really frustated.
Hey, I can understand all of that. So, I’ll share a little of what I’ve learned from the school of hard knocks. First of all, understand that online bids are run differently by everyone doing them. Most of the government entities (HUD, Fannie Mae, Freddie Mac, VA, USDA) have online bidding, and they all have their own variations. Ditto for many of the major banks and investment companies. And then there are the true auction companies who run their own bids. (I’ll save discussing them for another time as they’re considerably different from all of the rest.) With all of those variations, forgive me for having to double check the bidding specifics from time to time. I want to get it right for my clients, and keeping tabs on all of those variations (which change from time to time) would be a full-time job in itself.
Ok, the BIG question, how much do you have to bid to win? Come on now, if I had a crystal ball I’d be a billionaire. With maybe one exception, the bids are all sealed. In most cases I make the bids online (at the request of and for the benefit of my clients). The bidding is sealed so no one knows what’s been bid before or after I place my client’s bid. 6-7 years ago, the lenders offering their foreclosures for sale by bid had them priced much higher than the market was willing to pay, and they would oftentimes settle for bids substantially lower than their initial asking price. By substantially, I mean 10-20% less. However, in recent years they’ve sharpened their pricing models and now most bids are won somewhere between 92-110% of the asking price. You can bid lower than that, but in most cases it’s an exercise in frustration, a waste of time. How do you know what bid will win? Well, you don’t. The best you can do is “guesstimate” how fairly the property is priced compared to others on the market (considering location, size, condition, needed repairs, etc.) and how many other people are likely to be bidding on this particular property. The more people bidding, the higher the winning bid is likely to be. (Btw, I’m happy to help you sort all of that out and come up with the best bid!)
Now, understand a couple things, lenders evaluate the bids on net price. So, yes, you can have the lender pay your closing costs (let’s call them $4000 for talking sake) but the lender is going to evaluate your bid (say $100,000) as 100-4 = 96. And if someone else bids $97000 with no seller-paid closing costs, then their 97 will trump your 100 (because it only nets the lender 96). Another thing, if you’re using FHA financing (3.5% cash down payment) and bid above the lender’s initial asking price on a HUD home, well, you’re going to have to bring the amount bid above the initial asking price to closing in cash. So, if HUD is asking 100 and you bid 105, you’ll not only have to bring your 3.5% ($3500) but the $5000 excess (105-100) to closing. that would then be a total cash outlay of $8500 (3500 + 5000) plus any closing costs you were paying (which could make for an additional $4000 cash outlay). As they say, the devil is in the details. I’ll do my best to help keep you on the right path. Just be sure to tell me in clear terms what you want and what you’ve got to work with. We’re a team, and if you don’t see it that way please go waste someone else’s time!
Now, after doing many dozens of different bids, I’ve picked up a few tricks that help my clients have a strong batting average when it comes to winning online bids. If you’re interested in learning more, give me a call (317-625-0655).