Simply put, REO – Real Estate Owned – is real estate that has been obtained from a foreclosed loan, and is now the property of the mortgage owner. This is the third and final step taken by a lender – usually a bank – in order to recover the money loaned to the borrower.
Firstly, the bank will attempt a short sale – selling the property to the original borrower at a small loss, avoiding the long-drawn process of foreclosure. In case this fails, a foreclosure becomes inevitable.
A property that has been foreclosed is initially put up for auction to recover the outstanding loan amount, but if the auction fails then the lender has to resort to a more complex method of recovering its money. This method is called REO.
Once the auction fails, the lender then repossesses the property, i.e. claims it for its own. In order to make it fit for sale at a higher price, the lender may discharge certain expenses and liens pertaining to the property, also making rudimentary repairs if necessary. This property is now sold by the lender at prices determined according to the running rates – according to Broker Price Opinion or real estate appraisals. The sale is made either directly by the lender, or through known and established real estate brokers.
Brokerage in REO requires skill and training beyond what typical real estate brokerage does. However, with the incredibly high numbers of foreclosed and repossessed homes on the market today, training in REO brokerage is now a must for any real estate broker wishing to make it big in the business.