How To Tips:
Bidding Formulas
Bidding Formulas
Secret Government Formulas That Win Big
Winning the bid and knowing how much to bid in order to not over pay is not difficult at all. The formulas and techniques will be covered in this article. Percentages and the differences between each type of foreclosure and the formulas associated with each are covered in a later section. These formulas in the wrong hands can cause major problems if the formulas themselves are not fully understood.
If you win the bid on the house of your dreams and are unable to finance the home you have done yourself no good what so ever. In addition you could very easily wind up with a negative feeling toward foreclosures in particular or worse yet Real Estate in general.
If you are looking at a bank foreclosure than the rules of bidding are fairly simple. Contact your agent or the listing agent and express your interest.
Have a pre-approval letter made up by your loan officer for no more than the price you are planning to offer on the subject property.
Have your agent send the listing agent a letter of intent. This is different than a full blown contract as it covers only the generalities of the transfer. I.e. Price, Financing, Proposed closing date and do not forget the preapproval letter.
At this point your agent will deliver the letter of intent to the listing agent and then the listing agent will send the letter of intent to the bank holding the property. Be prepared to wait for at least a week. Banks work slow and cautiously.
Now you are asking what do I bid and what is the formula to determine how much is just enough to win the bid but not over pay. Here is where there is some trouble in paradise. Unlike HUD or the Veterans Administration, which are both government agencies. Banks determine the price they are willing to accept on a per property basis. Ask your agent to pull the tax records in order to determine how much was mortgaged prior to the foreclosure.
Do not be afraid of bidding below the amount mortgaged but do not be ridiculous. A figure of 10% to 15% is the most you can expect and the bank still may not be able to be this flexible. If you do not offer full price be prepared to loss the house to another buyer.
HUD homes: Housing and Urban Development (HUD) is the largest single resource for foreclosed property in the country. This is simply due to the fact that every one qualifies for an FHA loan. Whereas with the VA you must be a true veteran in order to initiate a veteran loan. FHA is also easier to credit qualify for as well as having a lower down payment than conventional loan programs. As most first time homebuyers opt for reduced down payments from five percent (conventional) to three percent (FHA).
The bidding formula is as follows for HUD/FHA homes.
You can bid 5% below asking price at a maximum. If you bid less than that the bid will not be accepted and your bid will be thrown out. If you require closing cost help of 2% you must ask for it during the bidding process and this figure must be allowed in your final tabulation. HUD allows for a maximum of 5% of closing cost help and in some states it is far less.
So, if you require 2% closing costs help reduce the 2% from the 5% you wish to discount your bid.
HUD/FHA Example.
$100,000.00 asking price
$97,000.00 offer
$2,000.00 closing cost help.
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$95,000.00 your true offer.
A similar formula exists for VA homes with some small differences. The Veterans Administration has the ability to be a little more flexible as the amount owned on the property can play a larger role in regards to repairs performed. Where HUD allows no more than 5% price reduction the VA can and sometimes does take as much a 10% off of the sales price. The VA will also allow 6% closing cost help. 1% does not sound like a lot but the math can be fairly impressive when 1% of the sales price equals several thousand dollars. VA allows for zero money down.
VA Example.
$100,000.00 asking price
$96,000.00 offer
$6,000.00 closing cost help.
(this is maximum and may not be required)
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$90,000.00 your true offer
