What is REO Property?
Real estate owned (REO) refers to property that a bank or mortgage lender has taken ownership of through the foreclosure process after the borrower defaulted on their loan and the property did not sell at the foreclosure auction. REO properties become assets on the bank's balance sheet — an undesirable position for financial institutions that prefer to hold loans, not real estate.
How properties become REO
When a borrower defaults and the lender forecloses, the property goes to auction (in most states). If no third-party bidder meets the minimum bid (usually the outstanding loan balance plus fees), the lender acquires the property by making a "credit bid" for the amount owed. The property then enters the bank's REO portfolio. The bank's asset management department or a contracted REO listing agent then prepares the property for sale.
Buying REO properties
REO properties are typically listed on the MLS through an REO listing agent, marketed on bank-specific websites (such as Homesearch.com for Bank of America, HomeSteps for Freddie Mac), or sold in bulk to institutional investors. Offers on REO properties go to the bank's asset manager who evaluates based on price, terms, and speed of closing.
REO characteristics
REO properties are sold as-is with minimal or no disclosures. The bank may have had the property inspected but typically will not make repairs. Pricing varies: some REOs are listed below market to attract multiple offers and sell quickly. Others are listed at or above market because the bank needs to recover its investment. Closing timelines may be longer because bank bureaucracy adds approval layers.
For wholesalers
REO properties are difficult to wholesale because banks generally prohibit assignment and have restrictions against quick flips (some require 90-day seasoning before the buyer can resell). However, REO properties can be purchased and immediately remarketed to your buyer list via double close. The opportunity is finding REOs priced below market where the bank wants to move quickly.