What Is An REO Property?
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?