What is an REO (Real Estate Owned) Property?
An REO (Real Estate Owned) property is a home (or other real estate) that has reverted to the lender—usually a bank—after an unsuccessful foreclosure auction. Here’s how it works and what it means for buyers:
About REOs
1. How a Property Becomes REO
Borrower defaults on mortgage payments.
Foreclosure auction is held; if there are no higher bidders than the bank’s opening bid (often the outstanding loan balance plus fees), the home does not sell.
Title transfers to the lender. At that point it becomes “Real Estate Owned” and appears on the bank’s asset books.
2. Key Characteristics of REO Properties
“Sold as-is”
The bank generally makes no repairs and discloses only what they’re legally required to.Pricing
Often listed at or below market value to encourage a quick sale, but banks will still seek full market price if there’s strong demand.Negotiation
You negotiate with a bank’s asset manager rather than a homeowner; turnaround on offers can be a bit slower.Financing & Inspections
You can finance an REO just like any other purchase (conventional, FHA, VA, etc.), and you should always get a thorough inspection—defects won’t be fixed for you.
3. Pros & Cons
| Pros | Cons |
|---|---|
| Potentially below-market pricing | Bank won’t make repairs; you take it “as-is” |
| Clear title (bank clears liens before sale) | Fewer disclosures than a typical sale |
| Streamlined closing once your offer is accepted | Offers can get delayed by bank-internal approval steps |
4. Finding & Purchasing REO Homes
MLS Searches: Many banks list REOs directly on MLS under “Bank Owned” or “REO.”
REO-specific portals: Banks like Fannie Mae (HomePath.com), Freddie Mac (HomeSteps.com), and HUD (HUDHomeStore.com) have their own REO listings.
Your agent’s network: Experienced agents often have contacts in bank asset-management departments and can tip you to new REO listings.
5. REO vs. Short Sale
Short Sale: Home is sold by the borrower for less than the outstanding mortgage balance—with lender approval.
REO: Lender already owns the property, so you negotiate post-foreclosure.
Bottom line: An REO property is essentially a “bank-owned” sale—often a good way to pick up a deal, but one that requires careful due diligence and realistic expectations about condition and closing timelines.