James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media." data-inline-tooltip="true">James Chen
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James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media.

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​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.

What Is Real Estate Owned (REO)?

Real estate owned (REO) is property owned by a lender, such as a bank, that has not been successfully sold at a foreclosure auction. A lender—often a bank or quasi-governmental entitysuch as Fannie Mae orFreddie Mac—takes ownership of a foreclosed property when it fails to sell at the amount sought to cover the loan.


Real estate owned (REO) is the term for a property owned by a lender because it failed to sale in a foreclosure auction after the borrower defaulted on his or her mortgage.Banks attempt to sell their REOs using a real estate agent or by listing the properties online.REOs are often sold at a discount by banks and other lenders. However, they are usually sold "as is" and are often in disrepair.

Understanding Real Estate Owned (REO) Propertiens

When a borrower defaults on theirmortgage, the pre-foreclosure period often involves either a real estate short sale or a public auction. If neither goes through, the foreclosure process can end with the lender—a bank, for example—takingownership of the property. Banksmay attempt to sell REO properties in their portfolios without the help of real estate agents. When this is the case, banks often list their REO properties on their websites. A bank"sloan officers mayalso notify customers looking for homes about the REO properties in its portfolio.


REO Specialistns

A bank"s REO specialist manages its REO properties by marketingthe properties, reviewingany offers, preparingregular reports on the status of properties in the bank"s portfolio, and trackingdown deeds. The REO specialist also works closely with the bank"s in-house or contracted property manager to ensure properties are secure and winterized or to prepare a property for vacancy. The REO specialist undertakes these job functions to help the bank liquidate its properties quickly and efficiently.


REO Properties and Real Estate Agentns

To give REO properties the widest exposure, REO specialists often contract the services of local real estate agents to list the properties in the multiple listing service (MLS). Listing REO properties in the MLS ensures that interested real estate seekers using websites such as Zillow, Realtor.com, Redfin, and Trulia—as well as local real estate websites—will see the listings. An REO property"s listing agent brings any offers he receives to the REO specialist. Real estate agents negotiate the commission they will receive for selling REO properties with the REO specialist.


To help ensure a smooth closing, buyers should also search public records to ensure that all liens associated with a property have been paid.


Advantages and Disadvantages of an REO Property

REO properties can be attractive to real estate investors and homebuyers becausebanks may, in some cases, sell them at a discount to their market value since selling such properties is not typically theirprimary business line. However, banks typically sell REO properties "as is," meaning the bank will not make any repairs prior to selling. These properties are often in disrepair, so it"s crucial to have a thorough inspection and be prepared to make (and pay for) necessary renovations.


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A lender confirmation auction is a foreclosure sale in which the high bid must be accepted by the lender before the sale is finalized.
A non-REO foreclosure, or non-real estate owned foreclosure, is a foreclosure process that ends without the lender taking ownership of the property.
Foreclosure is the legal process by which a lender seizes and sells a home or property after a borrower is unable to fulfill their repayment obligation.
In real estate, a short sale is when a homeowner in financial distress sells their property for less than the amount due on the mortgage.
Pre-foreclosure refers to the early stage of a property being repossessed due to the property owner’s mortgage default.

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Bank-owned property is a designation given to properties that were not sold during a foreclosure sale and thus are added to that bank"s inventory.