If no bid is above the reserve, then bidding goes into a daily opening mode for 20 more days. (Actually it's 20 calendar days of which only business days count for bid opening.) So, each day the owner-occupant bids are opened and the highest acceptable net bid wins.
If no owner-occupant bids are acceptable after 30 days, then the bidding goes into "Extended" mode, meaning anyone can bid. For the Extended period bids are accepted from investors and owner-occupants and opened each business day. The same reserve value is used to determine if the net amount after subtracting closing costs is high enough to be acceptable by HUD. The highest acceptable net bid wins.
IF the property is classified as Uninsurable (meaning FHA won't insure a loan in its present condition), then the "Exclusive" period is shortened to 5 days, and there is a single opening of all owner-occupant bids on the 6th day. Daily bidding by investors and others begins after that. Properties that are in good enough shape to be classified as Insurable or Insurable with Escrow use the 30-day rule above.
It may not be obvious that FHA-uninsurable homes don't get many owner-occupants bidding. So, the price during that window will likely be lower than what the property sells to investors for. The problem is that owners usually don't have the money to put into a repair account plus the 3-1/2% so the deal can be funded by a FHA loan. The repair escrow account would have at least $5,000 of owner money in it. Owner-occupants can also bid using a 203(k) loan, but lenders are just not supporting them anymore. Wells used to do them, but I don't know who will now.
It's a pig in a poke for owner-occupants bidding during the Exclusive period until daily bids start. No one knows what anybody else bids until they accept an offer. They used to tell us who won and how much the net amount bid was. Now they just remove it from the market. It's almost as if they were hiding something - transparency is not happening, despite Presidential assurances.
Some houses don't sell, but others sell above list price. This is especially true during the Exclusive period. There doesn't seem to be a rule, except that the ones in better shape do better.
Once the daily bidding starts, you can try bidding well below list and marching your way up until they accept your bid. I wouldn't bother bidding less than 80% of list: you'll probably be wasting everybody's time.
Your Realtor should be helping you to understand the process and helping you execute a strategy that makes sense in your situation. Your loan is a crucial element in the strategy, which we're not privy to.
Your realtor should also be able to give you a few names of mortgage officers who would best be able to assist you. The fact that you have already found the home that you want but have not looked for or found financing is worrisome. HUD will require a preapproval letter before you can even submit your bid.
Talk to your agent. Tell him/her that you would like more in depth information about the bidding process and about the home loan process. Ask them for recommendations and referrals. That is what they (we) are there for.
I have two great lenders that I work with that i would be happy to provide you, but have your agent contact me to get the information if you want them.
It's more than real estate. It's RAYL-Estate!
Brian Rayl, REALTORÂ®, e-PRO, SFR
Keller Williams Elite Park Cities