Real Estate Owned Properties: Are They Really A Good Deal?

real estate owned properties

If you’re looking for the opportunity to buy a house at a discounted rate, you might have come across the concept of real estate owned (REO) properties.
For many buyers, REO properties can be the perfect fit for what they and their families are looking for in a new home.

Interested in learning more?

If so, let’s talk about exactly what REO properties are, how they work, and what you can do to successfully find yourself in an REO home at a great deal.

What are Real Estate Owned Properties?

real estate owned properties

An REO property, also known as bank-owned property, is a property that has reverted to the mortgage lender after the home fails to sell at a foreclosure auction.

After the bank takes control of these properties, they’re usually pretty quick to move the process of selling the property along. The bank will handle any eviction proceedings if necessary, perform repairs, and pay off whatever tax liens might still remain on the property.

REO properties are pretty common in the housing market because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank.

A whole flock of buyers is usually lined up to bid on them because the minimum bid starts at an equal value to the outstanding loan amount, the accrued interest, and any other fees associated with the foreclosure.

If you’re a real estate investor, you’d be wise to go after these properties. Banks just aren’t typically in the business of owning homes and as a result, you’ll likely find some awesome discounts to their market values.

Now, what all does it take to find yourself signing the paperwork to secure an REO home?

Purchasing Real Estate Owned Properties

real estate owned properties

First of all, you’ll have to find real estate owned properties in your area. Thankfully, there are quite a few ways to come across their listings:

  • Multiple Listing Service (MLS) – The majority of lenders list their real estate owned properties on the MLS, so most real estate agents will be able to help you identify REO homes nearby.
  • Online specialists – Many websites feature free foreclosure listings while others may charge a fee. Simply use a search engine to look for these listings in your area if you’re web-savvy enough to find them on your own.
  • Bank websites – Some banks actually devote entire departments to selling the REO properties they control, and will dedicate sections of their websites to their listings.

If you find the right property for you and your family and are serious about buying, your best bet is to get pre-qualified for a loan. And if you’re really serious, you can get pre-approved by the lender who owns the property itself.

If you have good credit, the lender may be willing to loan you the full price of the foreclosure, and even more if there are some extensive repairs needed to get the property into top shape.

But remember, purchasing an REO home isn’t the same as it is with other homes on the market. They’re up for auction, so you’ll be competing with other buyers.

You’ll also need a considerable amount of patience since REO offers are often reviewed by several individuals and companies. It can take up to a few weeks for a response.

And because banks have to prove they’re acting responsibly to their shareholders and other investors, they’re required to prove they got the best price for the property. This means the longer the hold-up, the more likely it is that your offer will be met with a counter offer.

Even once you’ve reached an agreement with the bank, after battling counter-offers, the bank may still have to seek corporate approval for the negotiations. It might take some doing, but if you’re patient and determined, you’ll benefit from the deal.

Things to Consider When Purchasing REO Properties

Aside from patience, there are some other aspects of real estate owned properties to keep in mind. They can be pretty tricky too, so if you want to get in that new home on the cheap, remember:

  • Your offer must be strong. An FHA or VA loan with little money down may not be as competitive an offer as another buyer’s.
  • You may need to be qualified for a greater value than your initial offer. Because REO properties are sold through a bidding process, you want the option of placing a higher bid later to beat the competition.
  • Some areas of the United States are more competitive than others for REOs. In other words, the price might be a lot higher than it was initially by the end of the auction due to the number of bids.
  • The property itself will have to be in solid enough condition to pass an inspection, especially if your loan is through FHA or the VA. If it’s a real fixer-upper, it might not meet the specific loan guidelines.
  • If the property is part of a Homeowner’s Association, the lender may not approve the purchase. Lenders now take a look at delinquency rates and other factors when agreeing to provide financing for properties.
  • Some lenders have trouble transferring a clear title on some properties. Be sure to search public records for liens and outstanding taxes, and consider hiring a title company to comb over all the details.
  • If you want to purchase the property to rent it out as part of your landlord business, you might be required to pay a 10 percent down payment to your lender. As a result, you may have to find a private lender.


Phew! There sure is a lot to keep track of when it comes to buying an REO home. Many different factors can affect your property purchase, so your best bet is to stay on top of everything and remain focused on the prize.

Remember, getting a great deal will take some considerable time and effort – but it will definitely be worth it in the long run.

And if learning about the REO property purchasing process has left you with some additional questions, remember that you can always seek the help of a real estate agent (like me!). If you’re looking to purchase property in the Austin, Killeen, or Ft. Hood area, contact me today! I’d be happy to discuss whatever questions or concerns you have, and to help you get a great deal on a new home.