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REO is an acronym for real estate owned and refers to foreclosure properties owned by banks. REO homes have become a popular choice for first time home buyers, individuals seeking a second home, and real estate investors.

REO properties are sold through banks. Once mortgage lenders repossess real estate due to mortgage default or deed in lieu of foreclosure, properties are placed for sale through public auctions. If properties do not sell at auction they are returned to the lender.

Buying REO homes isn't new, but has recently become a bit of a phenomenon. As more people lose their home to foreclosure the number of bank owned homes outweighs properties sold through private sellers. Additionally, bank owned real estate is usually priced below market value making it more attractive to individual buyers and investors.

The beauty of buying bank owned properties is they are sold with a clear title. Buyers don't need to worry about evicting foreclosed property owners or be concerned previous owners will be able to buy their house back.

Many states allow homeowners the opportunity to repurchase their home within 30 days after it is sold through foreclosure auction. This can be disruptive for investors who purchase properties for use as rental homes or house flipping. While it is a rare occurrence for foreclosed owners to reclaim property, it can happen and buyers should be prepared just in case.

Buyers must obtain prequalified financing before submitting purchase offers for real estate owned by banks. Banks usually do not accept offers for less than the asking price. In fact, experts suggest submitting bids slightly above the asking price when properties are priced well below market value. It is not uncommon for multiple buyers to place bids on hot properties. If buyers find an exceptional deal, submitting a higher bid can help them obtain the property for sale.

Purchase offers are submitted to the loss mitigation department of the bank holding REO homes. Oftentimes, banks use local real estate agents to list foreclosure properties. Many realtors have begun specializing in listing foreclosure homes and can guide buyers through the process.

Another option to buying REO real estate is through investors who specialize in wholesaling. Wholesale investors purchase bank portfolios consisting of multiple foreclosure properties. Buying in bulk allows them to obtain reduced pricing. Wholesale properties are sold in 'as-is' condition, but can often be purchased at 30- to 40-percent below market value.

The Internet is a good source for locating wholesale investors. Buyers may also be able to locate wholesalers by joining local real estate clubs or participating in online networking forums. It is best to conduct due diligence to ensure the investor is reputable and has a solid history in selling real estate.

Regardless of where REO homes are purchased, buyers must proceed with caution and obtain home inspections and property appraisals. It is wise to obtain repair costs estimates to determine the true cost of the property. The goal is to buy distressed properties at substantial savings.

We invite you to learn more about buying REO properties by perusing our real estate investment and home buying article library. We offer tips and resources for investing in bank owned real estate, foreclosure homes, and short sale real estate, along with creative financing strategies for buying or selling real estate. New articles are added weekly, so take a moment to subscribe to our mailing list to stay abreast of current real estate market trends.