Arrowhead Escrow Blog

Lately there have been a few cancellations of HUD homes coming through our office. Most have been cancelled for the same reason so we wanted to write about it.

Bidding is an art form and the most important part of buying a HUD home. If you bid to low you may not get your house, or worse you bid to high. Recently there have been competing offers for HUD homes so naturally people are bidding higher to try to get the home. But what happens if you bid more than the home can appraise for?

Well this is what happens. Let's say there is a HUD home you are interested in and the listing price is $100,000. This home seems to be popular because there are multiple bids on it. You really want this home, so you bid $118,000.

You win the bid. Next the appraisal is ordered and to your shock the home only appraises for $105,000. What does this mean? Well you are obligated to buy the house at your bid price or you can cancel and run the risk of losing your deposit. Also no lender will approve you for a loan that is more than what the home is appraised for.

So what happens? Well you have to come in with the difference. in this case you would have to come in with an extra $13,000 to close. This is usually where most people cancel.

What can you do to make sure you are not over bidding? Well nothing is free, but its not very expensive to do some research to make an informed bid. Here are two things you could do.

First, you could get an Automated Valuation or AVM on the property. These are cheap, maybe $50 for a very complete report. This will show you the most recent sales and give you a statistical value of the home.

Second, you could pay an appraiser to do a "Drive-By" appraisal. Basically you pay an appraiser to drive by the home and look at it and then give you an estimated value. This will cost a little more than an AVM but not as much as a full appraisal, maybe $175.

Are these fool proof? No, of course not, AVM's and Drive-By's don't take into account the inside of the home. But its still better than bidding blind and having to come in with $13,000 at closing. If you had a choice would you rather invest $50 to $175 upfront or have to come in with $13,000 at closing?

--Arrowhead Escrow