What You Need to Know About HUD Approved Realtors
HUD approved realtors are the only agents that can represent you in a HUD transaction. Here’s what you need to know about selecting and working with HUD approved realtors:
What’s so special about “HUD Approved Realtors”?
HUD approved realtors have received training on the HUD auction process. Bidding on a HUD home is different than a typical real estate transaction, and agents need to know the basics. The training is relatively simple and generally entails a few hours of video instruction at the agent’s brokerage. HUD approved realtors are the only agents who can place a bid for you. They are also the only people who have the key or lockbox code to HUD properties.
What’s the difference between the listing agent and the buyer’s agent?
HUD hires listing agents (seller’s agents) to manage the foreclosure properties they are auctioning. When you drive by a HUD property, the phone number on the yard sign typically belongs to the listing agent. The brokerage hired to list HUD properties in your state is paid a flat fee; the listing agent will also receive a percentage of the sale price if your bid is accepted.
You may choose to have the listing agent represent you or you may choose to find your own HUD approved realtor. Generally, it is best to find your own agent. In most states, the listing agent has primary fiduciary duties to the seller (i.e. the listing agent will be “on the seller’s side”).
The one benefit of using the listing agent is that he/she probably knows the most about the property. Many bidders use the listing agent as their HUD approved realtor, so this agent may be able to give you an estimate of the property’s popularity and an idea of the bidding range.
Can I forego HUD approved realtors and buy the property on my own?
No. Unlike traditional home sales, there is no way to purchase HUD foreclosure properties on your own. You must have a HUD approved realtor.
How much do HUD approved realtors take in commissions?
The government does not specify a commission amount for HUD approved realtors. The bidding documents have a blank line for commissions and indicate that the buyer’s agent may take up to 5% of the selling price. The listing agent will also take a set percentage of the sale price.
Who pays the commission fees for HUD approved realtors?
HUD claims that they pay commissions to the listing agent and the buyer’s agent. However, the reality is a bit more complicated. When you make a bid, the agent’s commissions are deducted from the bid price. You do not pay any extra for commissions. However, when determining who wins the auction, HUD compares the final bid prices, minus commission deductions. If another bidder offering the same price as you has an agent with a lower commission, he/she will win the auction.
The bidding form below shows that the commission of both the buyer’s agent and the listing agent are deducted from the “net amount due seller.” This number is used to determine who wins the foreclosure auction.
Consider this example: two sellers make bids at $66,000. Seller A pays his listing agent a commission of $1,080 (3%). Seller B pays his listing agent $3,300 (5%). In this scenario, seller A would win the auction.
Although you are not technically paying the agents, their commissions are deducted from your bid amount – the only ways to counterbalance that are to raise your bidding price or pay a lower commission.
Can I find a HUD approved realtor to work for a flat fee or a lower commission?
Some HUD approved realtors will work for a reduced commission. This is especially true if the bidder has already done the majority of the work himself (searching through HUD homes, deciding on a property, collecting documents, etc) and the agent only needs to place the bid. A few HUD approved realtors will place a bid for as little as 1.5%, saving bidders thousands of dollars. One of the best ways to find a reduced-commission HUD realtor is to search for local agents already publicizing low commissions. Many of these “budget realtors” will be happy to work with you.
However, be aware that most traditional HUD realtors feel insulted by the proposition to work for less. If you need a HUD approved realtor to walk you through the process and show you a number of properties, you will probably need to pay full price.