Half-priced HUD homes are tough sell

Rules, compensation model offer little incentive for real estate agents

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 23, 2011

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Rules, compensation model offer little incentive for real estate agents

Steve Bergsman
Inman News™

When you write a column about positive moves by a government agency such as the Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD), you are bound to get some naysayers.

After my April 1 column, "Getting first dibs on HUD foreclosures," I received a number of intriguing emails, all of which were negative and/or distrustful of HUD.

I received a couple of emails from a reader named Jeff, which I will combine into one set:

As a real estate investor I don't get it. It seems the government is impeding the free market to destroy my ability to make a living. Everything the government does with regard to housing has negatively affected my business.

I bust my a** trying to find a house at a decent price, then work hours and weeks and months to rehab what's left after some lowlife scum totally ruined the home then sold the appliances and HVAC. The only reason he could buy it was government incentives/subsidies.

The point is, the government in all their programs and departments work against me 100 percent of the time. I have rentals and HUD wants everyone to own a home whether they are responsible or not. --Jeff

The most intriguing email, however, came from Paul, who wrote:

My niece, a teacher in the Baltimore school district, is able to take advantage of a HUD program called Good Neighbor Next Door. She is a first-time homebuyer. The program is open to firemen, policemen and teachers. Apparently she is able to purchase a HUD home at half price with $100 down.

She had been told by the Realtor and her mortgage rep that the house comes with a warranty and a home inspection is not necessary and will void her homeowner warranty. She does not have attorney representation and because of the "make a decision now because tomorrow will be too late" operation of this program, she along with others will be dragged into a less-than-desirable situation. --Paul

Some of this just didn't make sense, so I thought I would look into Good Neighbor Next Door (GNND), a program with which I wasn't familiar.

Basically, this is another attempt by HUD to reduce inventory by being beneficial. HUD offers a substantial incentive in the form of a 50 percent discount from the list price of a home to law enforcement officials, teachers and firefighters/emergency medical technicians. In return, they must commit to live in the property for 36 months. The homes are generally in marginal areas.

An early form of GNND was established in 1997, with the current format unveiled in December 2006.

My complaint is that the program flies too far under the radar, and numbers bare that out. In fiscal 2010, HUD sold 528 single-family units through GNND, and since 2006, only 2,500 properties have been sold.

Paul's complaints, or worries, were a bit unfounded. Checking in with HUD, I was told that all GNND homes are sold "as is," without any kind of warranty, and buyers are encouraged to get a home inspection. But you do have to act fast. GNND homes have limited listings, and then buyers are required to close on purchases within 45 days of the ratification of the contract.

This doesn't mean GNND operates smoothly. I called two North Carolina Realtors who advertise GNND expertise.

"The parameters are so narrow," said Derhyl Pruitt, team leader with The Pruitt & Miller Group in Charlotte. "They don't advertise it and then there's a 10-day period where you have to check on the HUD home stores before the homes are listed on the multiple listing service."

Also, the program doesn't apply to all HUD homes -- only those in select areas considered fragile or threatened, Pruitt said. "The first time I tried to do a GNND sale, the homes were not located where my client was interested in moving."

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