REO Properties: The Basics

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The hunt for a home can take a prospective buyer in many directions, and you may find yourself wondering if a real estate owned property – or REO – is right for you. Read on to learn more about this unique buying opportunity.

Key Notes

  • A property that is owned by a lender because it failed to sell in a foreclosure auction after the borrower defaulted on their mortgage is referred to as real estate owned (REO).
  • Banks try to sell their REOs by hiring a real estate agent or putting the properties on the market online.
  • Banks and other lenders frequently sell REOs at a discount. They are, however, typically offered “as is” and are frequently in disrepair.

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What is an REO?

An REO is a foreclosed property that the mortgage lender was unable to sell at public auction. This happens frequently because the minimum bid on a foreclosure is often higher than market value. This is because the bank is attempting to recoup their loss on the home, so the bid price may include everything from the mortgage balance owed to late fees and attorney fees from the previous owner. The bank will typically clear an REO home of occupants, but the property itself will be sold “as is.”

When a borrower defaults on their mortgage, a real estate short sale or a public auction are sometimes used to avoid foreclosure. If neither of these options works out, the lender—for example, a bank—may be forced to take possession of the property. Without the assistance of real estate agents, banks may try to sell REO homes in their portfolios. Banks frequently post REO properties on their websites when this is the case. Customers seeking homes may be notified by a bank’s loan officials about REO properties in its inventory.

Where can I find REO Listings?

A licensed real estate agent is your best source of information if you’re looking to purchase an REO home. An agent is a reliable way to learn the most up-to-date details about bank-owned properties, including any market fluctuations that may be at play in determining the home’s sale price. Some prospective buyers also have luck contacting lenders directly and asking for their REO listings.

REO experts frequently hire local real estate agents to advertise REO properties on the multiple listing service in order to maximize their visibility (MLS). Listing REO homes in the MLS guarantees that interested buyers may find them on websites like Zillow,, Redfin, and Trulia, as well as local real estate websites. Any offers received by a REO property’s listing agent are forwarded to the REO specialist. The commission that real estate agents will receive for selling REO properties is negotiated with the REO specialist.

How Can I Purchase an REO?

Purchasing any home can prove to be an arduous process, fraught with mounds of paperwork, but an REO purchase is even more complicated. Interested buyers must submit an offer letter to the bank stating the offer amount and an understanding that the house is to be sold in an “as is” condition. Unlike a typical home buying process, it’s unusual to get the opportunity to tour an REO home prior to making an offer. For this reason, it’s smart to include a clause in your offer stating that a final sale depends on a satisfactory home inspection.

REO homes can be smart purchases for the savvy buyer, but it is advisable to involve a real estate professional – such as a realtor or real estate attorney – in order to protect your financial interests.

Advantages and Disadvantages of an REO Property

REO homes can be appealing to real estate investors and homebuyers since banks may sell them at a discount to their market value in some situations because selling such properties is not normally their primary business. Banks, on the other hand, often sell REO properties “as is,” which means they will not undertake any repairs before selling. Because these houses are frequently in disrepair, a thorough assessment is essential, as is being prepared to perform (and pay for) any modifications.

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