It's pretty evident that this flood of REO listings is not stopping anytime soon. With unemployment rising and the sheer magnitude of available inventory, we haven't even seen the begining.  Somehow these banks have to eliminate these properties from their books. They are in the business of lending money, not owning property. Letting a property sit vacant for a few years will only cause depreciation of value. What's the quickest way to sell property? Auction. 

Think about it. If banks would let their foreclosed properties go up for absolute auction as soon as possible, they would get a fair market price immediately. No need to wait 9 months to get it listed and then overprice the listing while letting it sit vacant for two years until the price is competitive. It's an endless cycle of depreciating value. We all know the longer a property is on the market, the lower it's value becomes.

"I thought these homes are sold at auction?" You ask. Well, they do go to sherriff's sale, where most of the time, they are bought back by the banks to try and net more. The marketing for this sale is an address in the newspaper among hundreds of addresses, where a private auction would market more effectively and draw a better crowd because they are there for that property. 

I have heard of foreclosure auctions happening occasionally, and I know the lenders would net more this way. The banks could even eliminate the legal fees involved with foreclosure by settling for a short sale at absolute auction before the foreclosure. So why isn't it being done more frequently? And real estate agents can usually co-broker an auction, so why not give it a shot for a garaunteed commission?  Moral of the story is, something needs to be done about the amount of foreclosed properties on the market and here is yet, another solution.