We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are REO Homes?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

REO homes are real estate owned homes that are often offered for purchase at a highly competitive rate. The idea of an REO home is often associated with bank foreclosures that are then offered to buyers in the hope of recouping at least most of the investment made by the bank in the property. These bank owned REOs usually involve property where a default on an outstanding mortgage exists. Depending on the circumstances, an investor may be able to acquire the property well below the current market price.

Real estate homes that are put up for sale after a bank foreclosure are sometimes sold at an auction. When this is the case, the bank that currently holds the title to the property often is mainly interested in recouping any remaining investment that was made in the original mortgage. Any costs associated with the foreclosure are also often included in the calculation for the starting bid at the auction. The date and time for the auction is announced to the general public, and any investor who meets the credit qualifications may be allowed to bid on the REO homes listed on the roster of items to auction.

Purchasing REO homes is one method of obtaining a first home at an excellent price. For candidates with excellent credit or the liquid capital to complete the purchase with no delays, the savings can be significant. People who wish to create a network of rental properties often acquire REO homes in order to expand the rental business and offer more homes in desirable neighborhoods.

REO homes do not have to be sold by the bank at an auction. Many financial institutions maintain a listing of foreclosed properties and offer them for direct sale to qualified candidates. For this reason, it is often a good idea for anyone wishing to purchase REO homes to talk with a bank about properties currently held in foreclosure. There are also businesses that monitor foreclosure activity and provide information to land speculators and others who are interested in increasing their real estate holdings. These services are often provided in exchange for a fixed fee or a percentage of the final purchase price.

Since REO homes are bank foreclosed properties, it is often in the best interests of the banks to provide terms and conditions that will attract qualified buyers. This often includes smaller down payments as well as a break on the interest rates for any financing needed by the buyer.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

By cougars — On Jul 15, 2011

@Istria- A HUD home is a residence that was bought by an FHA insured loan and has been foreclosed on. The US Department of Housing and Development then becomes the owner of the property, selling it to the owner-resident, public, real estate broker, state and local government, or private organization. HUD homes can be bought at a significant savings, but they do share the same risks as any other foreclosure home.

HUD homes are not warranted against repairs and damage, so a home inspection is still necessary. Interested homebuyers may find particularly good deals when purchasing HUD homes because they often have programs for neighborhood revitalization and good neighbor initiatives that can reduce the price of the home much further. The government is also not trying to make a corporate profit on the HUD home, so they are often cheaper than bank owned homes.

In your case, HUD offers a good neighbor incentive on some of their homes specifically for teachers, fire fighters, and police officers. Qualifying homebuyers receive a 50% discount on the cost of the home for homes included in the program. To buy a HUD home, you will need a broker though, and the owners/tenants have first dibs on purchasing the property.

By istria — On Jul 15, 2011

What exactly is a REO HUD Home? I am interested in buying a HUD home because I have heard there are good HUD financing opportunities for teachers, but I do not know how to go about the process.

Do I need a realtor to bid on a HUD home? What is the good neighbor next door program, and how does it work? Do I need to finance a HUD home with a government-backed loan, or can I pay cash or find private financing?

By chicada — On Jul 14, 2011

@Framemaker- REO properties can be both good and bad investments. GiraffeEars makes some good points about the risks involved in purchasing an REO property, but there are also the benefits that author did not mention in the article. If you are looking to buy in this climate, you may find a great home in a market that has bottomed out, which costs less than its intrinsic value.

Additionally, banks have a glut of properties on their balance sheets that they are losing money on every day. They are trying to clear these properties off their books, even if it means taking a loss. Just be weary of the financing details. It still makes sense to shop for financing so that they do not make up the difference in the financing numbers.

I am more of an opportunist, and I would prefer to buy an REO during a recession. The bubble has peaked, the homes for sale at their lowest values, and there are fewer bids per property. With proper research, you can land a great deal in a depressed market easier than a sellers’ market.

By GiraffeEars — On Jul 14, 2011

@Framemaker- There are all kinds of risks involved in purchasing bank owned properties, and they can translate to paying more than fair market value for a property. It is somewhat of a misconception that a REO is going to be sold at a steep discount. Banks are not in the business of giving things away.

Most banks will sell an REO "as is", which means that the home could need numerous expensive repairs to make it livable. In most cases, banks will also try to recover their investment and then some. You could end up paying more than the value of the home if you factor in the cost of repairs, the number of offers on the property, and the price the bank is demanding.

Finally, bank owned properties must go through a lengthy approval process before the sale is completed. If one person in the long chain of command denies the sale, the process must be started over again. In some cases, a buyer may purchase an REO well before the market bottoms out, losing more value on the property, especially if the bank backed the loan when prices were artificially high. I would advise talking to a realtor before making a decision to purchase an REO.

By FrameMaker — On Jul 13, 2011

What are the downsides to buying an REO or foreclosed home? It seems like there has to be some risk involved in purchasing an REO. There are so many homes on the market, especially foreclosures. I would be interested in buying an REO, but I want to learn more.

What should I look for in an REO? Can I trust the banks to work in my best interest when purchasing an REO or are they only concerned about their bottom line? I am a first time homebuyer with excellent credit and some savings. Would an REO be a good investment?

Malcolm Tatum

Malcolm Tatum


Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.