What Is An REO Property?

Real Estate Broker/Owner with Mission Viejo, Foothill Ranch, Lake Forest, Ladera Ranch BRE# 01274644

What Is An REO Property?

What Does REO mean?R-E-O. Acronyms are great tools are they not? A simple way to economize words, right? For instance R-E-O is the acronym for "Real Estate Owned" in the real estate world.  Brief and succinct. Now that clears everything up right?

Hmmm.... no, not really.  What does "Real Estate Owned" mean to you and me?  Isn't all real estate owned by someone?  Well, don't try to make too much sense out of this acronym or the words behind it.  REO in simple terms is a bank owned home.  In most cases someone owned it; that someone defaulted on payments and the bank took it back via the non-judicial foreclosure process (California) and is now attempting to sell it.

So you want a more in-depth explanation... You asked for it! REO is a class of home (for our purposes we'll stick to residential real estate) owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. A bank will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the bank will legally repossess the property. This is usually the case in recent years as the amount owed on the home is probably higher than the value of this foreclosure property. As soon as the bank repossess the property it is listed on their books as bank REO or bank repos and categorized as "an asset (non-performing)".

Once a home enters distressed status(the borrower/home owner misses mortgage payments) the bank will want to determine the amount of equity that the property has. The bank's preferred method to determine the equity (or lack thereof) is to obtain a Broker Price Opinion (BPO) or order an appraisal. Based on the amount of equity that is determined from the BPO, the bank will decide whether to allow a short sale or to continue through the foreclosure process. If the bank is unable to sell the property through a short sale or at a foreclosure auction it will now become an REO property.

After repossession the home becomes classified as REO, the bank will go through the process of trying to sell the property on their own or obtain the service of an REO Asset Management firm. The bank will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a real estate broker. The asset manager will also try to contact REO realtors that specialize in certain zip codes to help sell this bank owned property. REO homes are often in poor state of disrepair and maintenance but the list price of an REO is generally more reliable than the list price of a Short Sale. Real estate investors will often purchase these properties, as banks are not in the business of owning homes and the low price may compensate for the condition of the property.

Many larger banks have REO/asset management departments that field bids and offers, oversee upkeep, and handle sales. Most REO properties on the open market will be listed in Multiple Listing Service.  Search here for Orange County REO Homes For Sale.

What Is An REO Property?

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Absorption Rate 101 - Why Inventory Levels Matter!

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OC Real Estate Solutions                                                            

by DAVE GUBLER| IML REAL ESTATE |  broker license #: 01274644

direct: 949 292 2763   |   office: 949 273 8923 
web: imlrealestate.com | blog: oc real estate solutions

Successes! 40 Homes Sold In The Last 12 Months: SOLD GALLERY

Comments (27)

Barbara Altieri
Better Homes and Gardens RE Shore and Country Properties - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Dave -- When I first heard this, I couldn't understand why banks chose to use REO instead of maybe BOP (bank owned property) or something similar. Alan's explanation makes sense.  Sense, that is to the bank, but not the general public.  Good explanation as there are SO many consumers who are confused.

Mar 31, 2011 01:03 PM
Sara Kraemer
United Real Estate Lexington - Lexington, KY

I like your summary of the process.  I've recently learned that I shouldn't assume that Agents know what REO stands for or even what Real Estate Owned means.  :)

Mar 31, 2011 01:15 PM
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Great blog and great explanation of the process...

Mar 31, 2011 01:16 PM
Bill & Cyndi Daves
Hiawassee, Young Harris, Blairsville, Hayesville, Murphy and Beyond! - Hiawassee, GA
TeamDAVES - Your REALTORS In the GA/NC Mountains!

Dave -

To carry the explanation a little farther.  Back in the 80's when I was in the banking business we called them OREO's - like the cookie.  This stood for Other Real Estate Owned.  Why "other"??  It meant it was real estate the bank owned that was "other" than the actual bank buildings, branches, etc. 

Over the years the "other" got dropped and that's where the term REO came from.

Hope that helps add a little to the understanding.

Mar 31, 2011 01:35 PM
Robert Butler
Aspect Inspection - Montreal West Island, QC
Montreal Home Inspector | Aspect Inspection

I've learned something here. Even though these terms are not used in my market its good to understand. The commentors here have put some history and filled in the back story too. Great stuff.

Mar 31, 2011 01:48 PM
Bukka Levy
Keller Williams Realty - Petaluma, CA
REALTOR - San Francisco North Bay

Acronymns are great, for texting! Sure you might look versed in real estate explaining all this, but most of the time I find the consumer just wants to hear 'Bank Owned'.

Nice job spelling it out, all the same!



Mar 31, 2011 02:24 PM
Roy Paeth
Keller Williams Inspire - Geneva, IL
Just a regular guy helping real people!

Dave great job explaining an acronymn that many do not truly understand. I really appreciate the way you broke the process of becoming an REO.

Mar 31, 2011 03:56 PM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Nice blog post, Dave. Congratulations on the feature.  REO is a hard concept for consumers to understand sometimes.  I get questions about it all the time - great subject for a blog.

Mar 31, 2011 04:35 PM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Dave, if consumers don't understand what a short sale is, how on earth can we expect them to know what an REO is? Especially when it is a name that doesn't even make sense when you know what it is.


Mar 31, 2011 05:02 PM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566
Dave, very good explanation. This is a great reblog article. It couldn't have been outlined more clearly.
Mar 31, 2011 10:38 PM
Randy Harden MBA
CENTURY 21 Wieder Realty - Pompano Beach, FL

Dave, out of all the questions that I get on a regular basis, this has to be the most common one. It is an odd name for foreclose property because its like an incomplete sentence. Whoever thought of Real Estate Owned needs to take a marketing class. Let's all change it to Real Estate Opportunity! ;)

Apr 01, 2011 01:28 AM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Dave, very good explanation and definition of an REO. Congratulations on the feature.

Apr 01, 2011 02:01 AM
Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES

Well written blog on the meaning of REO. Many people will find this blog very useful-Well done.

Apr 01, 2011 02:48 AM
Cara Marcelle Mancuso
Long Realty - Dove Mountain, Marana AZ - Tucson, AZ
Call a Marana neighbor, I'm THERE! LONG REALTY

EXCELLENT lesson, Mr. Gubler!  This is a terrific resource.

Apr 01, 2011 05:24 AM
Dave Gubler
Mission Viejo, Foothill Ranch, Lake Forest, Ladera Ranch - Lake Forest, CA
Realtor | Orange County

John - Yes, I think the more often we explain via our blogs jargon that we take for granted the better.  Sometimes terms become so second nature to us we forget that our clients have not been exposed to them.

Mike - Thanks!

Doug - Less jargon = better experience for buyers.

Gabe - I rarely use the term (other than with other real estate professionals), and typically refer to them as "Bank Owned" myself.

Kristi - definately a lot of confusion around this term.

Alan - I probably should have included the etymology of the term.  Thanks for providing it!

Jean - IMHO it is  a shame. :> )

Barbara - Unfortunately is see the term used more and more often in the "public" arena with no explanation provided for consumers.

Sara - Scary!

Cory - Thanks for taking the time to read it.

Bill & Cyndi - Now that is a new one for me... OREO.  Someone delighted in creating that acronym I bet.  Sounds contrived, no?

Robert - Yes, I learn something from commentors every time.  Love this community. 

Bukka - Yes, that was the impetus for this post as I see more and more often that real estate professionals (in my market anyway) are throwing the term around in the consumer marketplace without explaining it.  I personally always refer to them as "bank owned" or "lender owned" when speaking to clients.

Roy - Thank you for taking the time to read it and comment.  I appreciate the feedback.

Tni - Yes, over the last few days I fielded several questions regarding bank owned homes and had to clear up some terminology confusion so it seemed like a great blog topic.

Sharon - You are right!  The difficulty lies in remembering that at one point in time we did not know what these terms meant and that we should avoid using too much jargon; or make sure to clarify/explain terms when we do.

Cheryl - Thank you for re-blogging!

Wieder Realty - Yes, I am surprised the term caught on and persisted myself.  It just doesn't provide any illumination whatsoever in explaining/defining what it is.  "Bank Owned"; simple and clear.

Michael, Lanre & Cara - Thank you for reading and commenting!

Apr 01, 2011 06:10 AM
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert

Well done post Dave!  Good one for agents to Reblog on here too!

Apr 01, 2011 06:19 AM
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

This is good to know for the new comer looking at real estate.

I've bookmarked this for future reference.


THank you!

Patricia/Seacoast NH & ME

Apr 01, 2011 09:25 AM
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

This is good to know for the new comer looking at real estate.

I've bookmarked this for future reference.


THank you!

Patricia/Seacoast NH & ME

Apr 01, 2011 09:25 AM
Dave Gubler
Mission Viejo, Foothill Ranch, Lake Forest, Ladera Ranch - Lake Forest, CA
Realtor | Orange County

Chuck - Thanks for the re-blog.  Always some confusion surrounding this term.

Patricia - Thank you for reading and commenting.

Apr 06, 2011 08:12 AM
Orange county property

Nice post.I like the way you start and then conclude your thoughts. Thanks for this information .I really appreciate your work, keep it up 

Aug 08, 2011 05:56 AM