Making an Offer – the exciting conclusion!

In part one we went through some non-price related items to consider when making your offer and then in part two we talked a little about how much you should offer. In the last thrilling installment, we’ll look at a few other variables for your offer price.

Who owns this joint?

There are a few possibilities here: 1. Private individual, 2. Estate, 3. HUD, 4. Short Sale, 5. Bank (AKA REO)

Why does it matter? Just trust me, it does.

A private seller is probably going to have an emotional investment in this house. There may be a wall with their kids’ growth chart on it. If you offer significantly less than the asking price, they will might take it personally and then won’t sell it to you at any price. I’ve seen it happen. A private investor probably didn’t watch his kids grow up in the house (unless he’s an investor with my kind of home improvement schedule) but they may have put their blood, sweat and tears into it.

If this is part of an estate, you may be dealing with the person whose growth chart is on that wall. They may just want to get rid of the place or they may not care that much at all or they may take this transaction very, very seriously. This is where angels fear to tread.

For HUD owned properties it doesn’t matter what you’ve determined that it’s objectively worth. HUD has it’s own ideas about what it will accept. If your offer doesn’t measure up, it won’t get accepted. Don’t bother making an offer significantly below the asking price. You’re just wasting your time. Don’t like the price today? Wait until tomorrow, it might be lower.

There really aren’t that many short sales in these here parts (although they are getting more prevalent) so I’m not going to spend much time here. Suffice it to say that the price listed may have little or nothing to do with a price that might actually be accepted and I’ll leave it at that. Offer what it’s worth to you, no more, no less. And then prepare yourself for a long, long, wait for an answer.

Foreclosure/Bank owned/REO/Real Estate Owned (I’m letting you in on a little real estate slang that I don’t completely understand myself – isn’t all real estate owned by someone?). Anyhoo, make an offer, any offer. It might get rejected, it might get countered or it might just get accepted. Do what you will without worrying about an emotional reaction.

How much do you love it?

Ah, there’s the rub. And probably the most important factor of all. What’s it worth to YOU?

So what in the &*%$ am I supposed to offer these people (whomever they may be)?

That’s where a good Realtor (like me!) comes in. You have to take all of these factors into account, compute the algorithms, carry the 4, plug that result into excel, and then you’ll have your offer price.

Doesn’t matter if you’re at step 1 or step 9, drop me a line and I’ll help you find a great house and then I’ll help you figure out what you should offer. And then help you negotiate your financing, the title work, the inspections, the appraisal, the…you get the idea.

Contact me for more information about anything you see on this blog.

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Making an offer – Part II

There are lots of variables to consider when making an offer. That’s where a good Realtor (like me!) comes into play. We already talked about a few of them and now we’re homing in (no pun intended) on the grand-daddy of all variables: PRICE

There’s no better way to make an agent -or maybe it’s just me- cringe than to say: What percentage below the asking price should I offer for this as-yet-unidentified home? Because there’s No. Way. To. Answer. That.  Once you have a specific place in mind, I’m happy, in many cases even ecstatic, to start talking about an amount.

Here are the first keys things to consider when deciding on your offer price:

What is the value of the house?

A radical idea, I know. The reason I cringe (see above) is because there isn’t an asking-price based mathematical formula. Instead of saying, “I’m going to offer 20% less than the asking price, no matter what that price is,” you should instead look at whether the asking price is lower or higher than the market. In some cases, the price might be significantly less than what the house is actually worth. In these cases, offering over the asking price might be justified.

What, what, whaaaaat? Offer over the asking price? Have you lost your mind? Didn’t you hear that real estate is in the toilet?

Yeah, I’ve heard that but it really isn’t true, at least not here in the Chattanooga real estate market. All the bad news that you’ve heard has influenced some sellers and caused them to -strategically- price their homes lower than the market in order to sell them quickly. If you come across one of these and it’s perfect for your family, don’t start thinking about how much under the asking price you should offer. JUMP. If you don’t, someone else will and you’ll miss out on it. Give ’em what they want.

How long has it been on the market?

Maybe it’s a great house, maybe it’s exactly what you are looking for, maybe you can’t understand why it hasn’t sold already. But if it’s been on the market for more than 45 days at its current price, there may be some negotiating room. Not necessarily, but maybe.

If you’ve come across a home that you think you want (or even if you haven’t), drop me a line and I’ll help you figure out what you should offer. And then help you negotiate your financing, the title work, the inspections, the appraisal, the…you get the idea.

Pictured homes for sale are in Ooltewah and are HUD owned.

Contact me for more information about anything you see on this blog.

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Frequently Asked HUD Questions – Part II

Check out the first post in this series here. But we’re just getting started on everything you need to know about buying a HUD house. By the way, some of these aren’t questions that are asked all that often, but rather questions that you should be asking.

What does “insured” or “insured with escrow” mean?

HUD homes are usually listed as being “insured with escrow for required FHA repairs” or occasionally “uninsured.” What this means to the buyer is that, if you are using FHA financing, a home insured with escrow will require some repairs as part of the conditions of purchase. With non-HUD houses, these repairs would have to be completed prior to the closing of the sale. With HUD homes, the repair allowance amount, shown in the listing, is added to the amount of your loan and amortized into your monthly payment. After the closing of the sale, you will be required to complete these repairs and pay for them out of your pocket within a specified period of time – usually 90 days, although extensions are usually possible. Once the repairs are completed, the FHA appraiser will return to assess the repairs, making sure they have been done to FHA specifications. At that point, the homeowner will submit receipts for the work and will be reimbursed from an escrow account set up by your lender. If the total of the receipts is less than the amount in the escrow account, the remainder will be credited back to the balance of your loan. Any amounts over the escrow amount will not be reimbursed. If a home is listed as “uninsured,” FHA financing is not available. These places usually require fairly extensive repairs and should be considered by investors or those who are comfortable tackling relatively long term projects. Every once in a while, someone will luck out and find a house that is just “insured.” This means that FHA financing is available without any required repairs. If you see one of these that isn’t a practically brand new house, be sure to go play the lottery that day, for lady luck has smiled upon you.

What kind of deposit do I have to put down?

For most houses, the earnest money required is $1,000. For some, fairly inexpensive houses, you will only have to give us $500 up front. The biggest difference between HUD earnest money and others, is that it HAS to be in the form of certified funds, most sellers will let you write a personal check at this point. HUD doesn’t trust you as far as they can throw you. The good news? If you are using FHA financing and plan to occupy this house, this could very well be the only money you have to come up with.

What do you know about the condition of the house?

HUD provides a “Property Condition Report” which assesses the overall condition of the home with a checklist of all structural, mechanical and, to some extent, cosmetic items in the home. You can find this report on any currently listed home by clicking here and searching by the address. This report is not a substitute for your own home inspection. Problems with plumbing or electrical systems are often shown simply as not functional without specifying the source of the needed repairs. In other words: we’ll tell you what we found upon a simple inspection but really, as the buyer, you should beware.

More to come later!

Contact me for more information about anything you see on this blog.

Visit my website to search for homes.

Subscribe to my blog to stay updated on Chattanooga homes for sale, real estate news and community interest.

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Buying a HUD Home in TN

Buying a HUD house, i.e. a home owned by the Department of Housing and Urban Development, is generally the same as buying any other home with a few key differences.

1. HUD homes are listed for a set amount of time, usually around 10 days, before any offers will be considered. At the expiration of this bid period, all offers received from owner occupants will be considered. If an acceptable offer has been received, the winner bidder will be notified and the home is then under contract assuming that all original paperwork is received by HUD within 48 hours of notification. If no acceptable offers are received, new bids will then be reviewed on a daily basis going forward. Any offers received before midnight of a particular day are considered to have been received at the same time. Non-owner occupant offers are not considered during the initial bid period. It is a federal crime to represent yourself as an owner occupant if you do not intend to occupy the home for a period of at least two years.

2. HUD allows 3% of the purchase price to be used for closing costs. This amount is already built into the price of the home and an offer for the full asking price which requests this 3% is still considered by HUD to be a full price offer.

3. HUD uses a numeric formula to determine whether or not to accept an offer. So called “low ball” offers will never be accepted. Contact me for more information on what types of offers will usually qualify as a winning bid. HUD reduces the price of its listings on a regular basis. The amount of these price reductions is, in almost all cases, 10% of whatever the original asking price was.

4. HUD homes are usually listed as being “insured,” “insured with escrow for required FHA repairs,” or occasionally “uninsured.” What this means to the buyer is that, if you are using FHA financing, a home “insured” will not require any repairs. “Insured with escrow” will require some repairs as part of the conditions of sale. With non-HUD houses, these repairs would have to be completed prior to the closing of the sale. With HUD homes, the repair allowance amount, shown in the listing, is added to the amount of your loan and amortized into your monthly payment. After the closing of the sale, you will be required to complete these repairs and pay for them out of your pocket within a specified period of time – usually 90 days, although extensions are usually possible. Once the repairs are completed, the FHA appraiser will return to assess the repairs, making sure they have been done to FHA specifications. At that point, the homeowner will submit receipts for the work and will be reimbursed from an escrow account set up by your lender. If the total of the receipts is less than the amount in the escrow account, the remainder will be credited back to the balance of your loan. Any amounts over the escrow amount will not be reimbursed. If a home is listed as “uninsured,” FHA financing is not available. These homes generally require fairly extensive repairs and should be considered by investors or by those who are comfortable tackling relatively long term projects. ***Not all FHA lenders are able to close an FHA loan with escrow***

5. HUD requires a $1000 earnest money deposit for most sales. For lower priced homes, $500 is acceptable. This earnest money check must be in the form of certified funds.

6. HUD is currently offering “$100 down payments” for buyers utilizing FHA financing. This program is subject to change or discontinuation, but for qualified buyers, your earnest money deposit may be the only out of pocket expense to you to purchase a HUD home! Compared to the 3.5-5%+ required for almost all other purchases, this could mean the difference between being able to afford the home of your dreams now or having to wait to save up a down payment.

7. HUD provides a “Property Condition Report” which assesses the overall condition of the home with a checklist of all structural, mechanical and, to some extent, cosmetic items in the home. You can find this report on any currently listed home by clicking here and searching by the address. This report is not a substitute for your own home inspection. Problems with plumbing or electrical systems are often shown simply as not functional without specifying the source of the needed repairs.

8. HUD does not provide utilities for prospective buyers to perform their inspections.The buyer must have any needed utilities turned on in their own name and must pay for any costs to do this. If the inspection will be performed from October-March, a $75 fee is required to cover the cost of re-winterizing the home after your inspection. In addition, your may not back out of a contract without forfeiting your earnest money due to required repairs unless the repairs are: A. structural and/or mechanical; B. were not immediately evident upon a visual inspection, and C. were not listed in the property condition report.

9. HUD requires a very specific pre-approval letter with very specific information from your lender before they will return a binding contract. This letter must be submitted within 48 hours of notification of acceptance and must be from a direct lender, not a mortgage broker. It is best to use a lender (and REALTOR) who is familiar with and has experience completing HUD transactions.

10. Only registered real estate professionals may show and sell HUD homes. Contact me for more information or to view a HUD home. Click here for a list of currently available HUD homes.

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