REO Homes

You may have heard the terms REO home, bank-owned home, or foreclosed home. Maybe you've considered buying a foreclosed home, but don't know where to start or what to expect. Let's start off by answering a few common questions we get from readers and customers.

• What is an REO?
  REO stands for Real Estate Owned, and it means that the home is owned by the bank. REO homes are also called bank-owned homes, or foreclosed homes. These homes may or may not be listed with the local MLS for sale.
• How does a home become an REO?
  Typically, the owners will fall behind on their mortgage payments, or may even intentionally stop making payments. They may have the opportunity to sell the home at a break-even price, or for less than they actually owe (this is called a short sale). If the owners cannot sell the home or make their payments, the bank will try to sell the home at auction. If that fails, the bank will take ownership of the home. This is known as foreclosure.
• What's the difference between an REO, bank-owned, and foreclosed home?
  There's no difference between an REO, bank-owned, or foreclosed home. They all mean the same thing: a home that has been repossessed by a bank. Some of these homes may be listed with the local MLS. Bank-owned homes that are not listed may still be in the process of getting prepped for sale, or the bank may be holding these homes back to wait for a more favorable time to sell.
• Is an REO home the same thing as a short sale?
  No. Think of a short sale as an owner's last-ditch effort to sell the home before the bank forecloses on it. If the owner can make a successful short sale, the bank will collect at least a portion of what it's owed. If not, the bank may eventually foreclose on the home, and attempt to recover its money by re-selling the home to another buyer. See our short sale page for more information.
• Are REO homes always a great deal?
  In real estate, there's no such thing as a surefire great deal. Every home is different, and every purchase is unique. REO homes can represent a good opportunity for a home-buyer, but they can offer unique challenges that may not be for everyone. You may also be responsible for extra fees and expenses when shopping for an REO home, whether or not you end up closing the deal. These fees can really add up if you end up touring and making offers on multiple homes.
• How long does it take to buy an REO home?
  It varies. When the glut of REO homes first hit the market, the process of buying them was usually long and prone to failure. Most banks simply didn't have a good process for selling large numbers of REO homes. However, many banks have streamlined their process to the point where buying an REO home doesn't take much longer than a standard home purchase -- around 45-60 days.

For more information and discussions about REO homes, see what people are saying in our forums.

Redfin makes it easy to search for foreclosures:

1. On the search map, click on More Options at the top of the page, near the search box.
2. In the bottom left column of the Options menu, select which foreclosures you want to include in your search:
• MLS-listed foreclosures: These homes are available to tour and purchase with a Redfin agent.
• Foreclosed homes: These homes are bank foreclosures that have not yet been listed for sale. Generally, they are not available to be toured or purchased. However, these homes usually will be processed and listed for sale in the future, so it can be useful to keep track of them.
3. Once you've selected one or both of these options, click on Search Listings to display foreclosed homes in your area.

Another good resource for finding REO homes is RealtyTrac, where you can search for all types of foreclosures for a monthly fee. Check out this post in our blog for more information.

Touring an MLS-listed REO home is similar to touring any other MLS listing. The home will be represented by a listing agent, who will meet you at the home. You'll show up with your agent, look around, and ask questions.

There are a few key differences to be ready for, however. For one, the home is likely to be without power, water, and heat. This is because banks shut off these services to protect the home and save money on maintenance. Secondly, an REO home may not be in pristine condition -- some homeowners will purposefully sabotage a home after they've been foreclosed upon, or may strip the fixtures, door knobs, appliances, and even the copper plumbing on their way out. Even if the previous owners left the home in pristine condition, some REO homes fall victim to squatters or thieves.

Some banks will restore or repair a home if it's been trashed by a previous owner, but the quality of repairs may vary. Some banks will not repair their REO homes at all, and will sell the home as-is. If you tour an REO home, be on the lookout for signs of damage, half-hearted repairs, or other trouble. And remember that a thorough home inspection is a must-have for this type of purchase.

While buying an REO home is similar to a 'standard' home purchase, there are some key differences. Make sure you've set your expectations before you commit to an REO purchase.

Interested in making an offer on a bank-owned home? Here's what to do, and what to expect:

1. Get your finances ready: Banks don't want to mess around with an iffy buyer. If you make an offer on an REO home, your loan pre-approval has to be airtight. Many banks will actually charge you a fee of around $150 per day for any closing delays caused by late financial paperwork. Also worth noting is that some banks will give preferential treatment to buyers who are pre-approved with their own lending department.
2. Do your homework: As with any home, the key to determining your offer amount is by conducting a thorough Comparative Market Analysis (CMA) of similar homes, and using that as a benchmark to determine your offer. After you get your home inspection, you can try to renegotiate your offer amount with the bank.
3. Make your offer: Once you've got your metaphorical ducks in a row, it's time to make your offer. Make sure your offer includes an inspection contingency that will let you exit the purchase if your inspection discovers a serious problem with the home. This contingency will also give you the leverage you need to renegotiate with the bank on your offer price, to cover any repairs recommended from your inspection.
4. Get a thorough home inspection: An inspection is important for any home purchase, but it's absolutely critical for an REO. Banks tend to put minimal effort into restoring and repairing homes that may have been trashed during the previous owner's exit. Consider specialized follow-up inspections, such as a sewer scope to make sure no one flushed concrete down the plumbing (it does happen!)
5. Renegotiate: Once you've had the home inspected, you should use what you found to inform your offer price. Other comparable homes in the area may be going for $400,000, but if this home needs $30,000 in repairs, that's a strong negotiating point in your favor. Don't expect a bank to roll over on price -- you'll need to document potential repair expenses to make a strong case.
6. Close the deal: Continue working with your agent, attorney, and/or title company to close the deal on the home.