Real Estate Owned Properties, or REOs, are unique assets. When a house hits the market, many of them are never actually sold. In fact, today’s housing market has left many REOs behind.

This term is commonly used to describe a property owned by a lender, which is usually the bank, a government agency, or government loan insurer. When the home fails to sell after foreclosure, a beneficiary sets up a bid at a specialty auction where interested bidders can try to buy the property one last time. If there are no bidders, the beneficiary can legally take ownership of the property.

An REO is common when the amount owed on the home is higher than the market value set by a real estate agent. When the beneficiary takes possession of the property, it can be re-classified in the books as an REO asset.

What is an REO?

The term is taken from OREO. Originally, Other Real Estate Owned properties were called OREOs on financial statements, to make it easier to classify real estate property owned by financial institutions not directly related to its business.

REO properties and OREOs are essentially the same, however, property management companies that deal primarily with real estate management tend to use the term OREO.

While lenders are in the business of making loans, many buyers do not realize that home mortgages need to be repaid in full and with interest. A lender may then make it a secondary line of business to seize, manage, and resell property collateral to recover the balance. Within property management companies, the most common term for these homes is OREO.

How is an REO made?

There are 3 ways a home becomes an REO

  1. Foreclosure
  2. Auction
  3. A deed in lieu of foreclosure

When a property goes into “distressed” status, meaning that the mortgage has not been paid, the beneficiary will determine the equity of the property. This can be determined by the Broker’s Price Opinion (BPO) or appraisal. Depending on what the BPO sets as the amount of equity, the bank can decide to allow a short sale or not. If the homeowner requests it, the beneficiary may continue the process of foreclosure, and thus, re-categorize the property as an REO.

After a property is classified as an REO, the beneficiary will list the property or get the help of an asset manager. After removing any debts from the home, including liens, the home can be listed with the special category of REO for sale.

The house may be sold to the public alone, at auction, through a real estate broker, through direct marketing, or other means like zip code listing. Larger institutions and banks with REO and asset management departments may handle sales, however, some properties are placed on MLS by the broker who performed the BPO.

Bulk real estate owned properties, or bulk REOs, are also a type of OREO. They can be seen, from an investors point of view, like wholesale real estate.  

Talking to a Real Estate Agent About REOs

Real Estate Owned Properties, or REOs, can also be called bank-owned properties. A highly desirable way to purchase real estate, REOs are not always easy to find. Often times, they are not available through public listings such as the MLS.

bank-owned-properties

How to snatch up REOs:

  • Look online for the keyword, “bank owned property”
  • Ask real estate agents
  • Visit bank branches
  • Check various foreclosure auctions
  • Use databases and software for REOs
  • Talk to your real estate agent

Call the office of Jeff Barchi to find your next in the Phoenix area. Not only will you get to shop the best selection of Arizona real estate properties, but you will also get tips from the pros on how to take advantage of publicly and privately listed REOs. It is the best way to know for sure that you have done a comprehensive search.