REO property: Overview, definition, and example
What is REO property?
REO (real estate owned) property refers to real estate that is owned by a lender—usually a bank, government agency, or other financial institution—after it has gone through the foreclosure process and failed to sell at a foreclosure auction. When a property is not sold during the auction, it becomes REO property. The lender now owns the property and is responsible for its maintenance, sale, or disposal.
For example, if a homeowner defaults on a mortgage, and the home is foreclosed on but does not sell at auction, the property will become REO and is likely to be listed for sale by the bank or lender.
Why is REO property important?
REO property is important because it represents an opportunity for both buyers and investors to acquire property at potentially lower prices than market value. These properties are typically sold by lenders looking to recover the loan amount they are owed, which can lead to discounted prices, making them attractive options for investors or businesses. REO properties can also be important for real estate professionals and financial institutions to manage, as they represent assets that the lender must maintain or sell.
For SMBs, particularly those in the real estate, construction, or investment industries, understanding REO properties can provide opportunities for acquiring valuable assets, expanding property holdings, or making strategic investments.
Understanding REO property through an example
Imagine your small business is looking to expand its office space, and you find an office building listed as an REO property. The building was once owned by a business owner who defaulted on their mortgage, and the property is now being sold by the bank that took ownership after foreclosure. Because the building is an REO property, the bank may be willing to sell it for a lower price than a comparable building on the open market, giving your business an opportunity to acquire it at a more affordable price.
In another example, a real estate investor might focus on buying REO properties, renovating them, and selling them for a profit. Since REO properties are often priced below market value, they can provide an opportunity for significant returns on investment if the property is improved and sold.
An example of REO property in action
Here’s how an REO property might be referenced in a real estate agreement or listing:
“The property located at [address] is an REO property, owned by [bank name], and is being sold as-is. All offers must be submitted through the bank’s real estate division for consideration.”
Conclusion
REO properties are properties that have been repossessed by lenders after a foreclosure and failed to sell at auction. For buyers, investors, or businesses looking for property deals, REO properties can present an opportunity to acquire real estate at discounted prices. Understanding REO properties and how they work can help businesses capitalize on opportunities in the real estate market and strategically grow their assets or operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.