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What is a REO? 


REO is an acronym used by financial institutions, which means Real Estate Owned, and has come back into the bank's portfolio via a foreclosure process. The purchase of a REO property is much different than conventional homes and outlined below are the major points of difference. Most REO properties are sold as is with the seller making no repairs, and is addressed in their corporate addendums stating that the buyer will purchase as is but still have the right and contingencies of inspections. Furthermore, the seller does not provide a sellers disclosure statement, as they have no information on how the former owner was maintaining the property other than what is evidenced by the home's current condition.


It is of the utmost importance to be pre-qualified or better yet pre-approved by a financial institution prior to making an offer on a REO property. In most cases the seller will not even respond to an offer without verification of the buyer's ability to procure financing.

There are several financing programs available for the purchase of as is properties and we can provide you with the information on these programs. Most sellers will not hold second mortgage, allow preoccupancy, but in some cases the seller will offer special financing incentives. Furthermore, some sellers may require that the buyer be pre-qualified by one of the seller's loan representatives to give them the assurance that financing will not be an issue.

For those buyers making cash offers, the buyer must be prepared and willing to provide the seller with written verification of funds available to close. Also, some sellers may require cash buyers to close within 10-14 days after contract acceptance.


It is important that the buyer realizes that a REO property is owned by a corporation and replies to that offer may take anywhere from 2-5 business days. Many times the offer process has to go through different levels of management for a counter proposal or acceptance and the buyer must be patient for the corporation process.

Multiple offers

In many cases, REO properties will receive several offers on a property, and the seller will instruct the listing agent to inform all potential buyers that there is a multiple offer situation, and will request that all buyers present their final and best offers within 24 hours and will then decide on which offer they will work with. The seller is not obligated to accept any of the offers if none meet their requirements for the property and may counter offer the offer they feel has the most merit. Usually, the seller will require the listing agent to keep the property on the market for acceptable back-up offers if there are any problems encountered with the first position contract, so they don't lose marketing time.


Most financial institutions require a 30-day closing period and if the buyer is not able to close on the date specified in the contract, the seller will normally have a clause in the contract that if the buyer requests a closing date extension, then the buyer will be required to pay a per diem penalty as a condition of an extension. If the per diem penalty is $50.00 a day then that amount is multiplied by the number of days past the original closing date and the buyer will have to pay that amount at the time of closing. Example: $50.00 a day per diem multiplied by a 10-day extension would be a $500.00 penalty paid by buyer at closing.

Furthermore, the Seller, Listing Agent, or Title Company is not responsible for the ordering of a survey, termite report or home inspections and is the responsibility of the buyer.

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