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What to Bid on a HUD Home- The 89% Rule

What to Bid on a HUD Home- The 89% Rule

Multi-family properties have been popping up on the market in our target area in the last few weeks but they’ve been above our price point and it’s been incredibly frustrating. We just want to land our first deal already!

The night before we were scheduled to see two properties, I was browsing the MLS and noticed a new listing; a foreclosure property near our target area. I quickly texted our realtor and asked if we could add this house to our tour of properties the next day.  

The first two properties we saw weren’t very exciting so we made our way over to the freshly listed HUD home.

I knew nothing about buying a foreclosure so I was slightly apprehensive.

The property is a duplex. A two-bedroom one-bath unit on the first floor and a one-bedroom one-bath on the second floor. Detached garage with driveway and a small yard in a B neighborhood.

We toured the property.

The first floor unit was in good shape. Already has hardwood floors throughout and a decent kitchen. We would just need to gut the bathroom, update the kitchen appliances and hardware, replace some drywall and paint the unit.

The second floor unit also has hardwood floors but needs a total kitchen and bath renovation and we would want to take down a portion of the wall between the kitchen and living to make the space feel more open.

I loved it and wanted to make an offer.

But what do you offer on a HUD home?

Let’s start by explaining the bid process because this was totally new to me. Thank’s to Invest Four More for this great explanation of the bidding process.

When a HUD foreclosure is first listed for sale and is listed as insured, there is a 15-day owner occupied bid period. This consists of a 10-day open bidding exclusive period for owner occupants, nonprofits, and governments agencies.

After the 10 days, HUD goes through all of the bids and may pick one if it meets their threshold. If they don’t accept any bids, then it goes through another 5-day continuous bid period still only for owner occupants, nonprofits and government agencies. If they still don’t accept a bid, it opens up to other types of buyers such as investors.

Now that we knew the bidding process, we had to figure out what to offer. Do we go with a low ball number knowing there aren’t any emotional sellers to offend or put in a best and final knowing this is a bidding game and the person with the deepest pockets wins?

So I dug into the deep depths of the world-wide web and found out about a HUD bidding secret!

Okay, it’s not a secret as it can be easily found on the internet. But it’s useful nonetheless.

The 89% rule. (Depending which source you read, it may be called the 88% rule)

Brett Alphin, a real estate investor and agent in Los Angeles, California, started this great forum about different HUD bidding strategies. According to Alphin and other real estate sites, HUD has certain thresholds that bids must pass in order for the bid to be accepted. These thresholds vary depending on a few factors such as how long the property has been on the market.

Basically, HUD needs to NET 89% of the list price for your offer to be accepted.

Math time.

Let’s say the house is listed at $100,000. HUD must NET $89,000.

To figure out your offer price, take $89,000 and add in realtor commissions (usually 3% to the listing agent and 3% to the buyer’s agent) which in this case is $6,000.

So you add $6,000 (6% commission) to $89,000 (NET to HUD) which gives you your offer price of $95,000. If you wanted to request HUD to pay certain closing costs, you would add that amount as well.

Since your bidding against a computer, ensuring your bid beats the threshold gives you a great chance at getting the property.

Let me clarify that the 89% rule is for listings that are fresh to the market. If the property has sat for a while, or was pending and is now back on the market, there are different thresholds.  Brandon Cornett over at has some good insight on this in those cases.

Now there is some speculation that there is a lower threshold during the owner occupant 15-day period but we wanted this house and we didn’t want to risk it. So we made a bid that was 89% NET to HUD.

And good thing we did because…


Now we’re off to the races with inspections scheduled for next week.  

Have you had similar experiences with bidding or know of any other strategies? We’d love to hear about it in the comments section below.

Wish us luck!

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