R.E.O. or Real Estate Owned properties are owned by a Bank that went into foreclosure, proceeded to auction, did not sell, reverted back to the lender and then listed for sale by Realtors chosen by the lender.
There are three types of foreclosure deals: preforeclosure properties purchased from the homeowner prior to the auction, foreclosure auction sales and R.E.O. sales from the lender. I believe that best deals are in preforeclosure, followed by auction with R.E.O. properties currently last.
R.E.O.’s used to provide investors with a great way to purchase properties at a substantial discount to market as well as being able to perform a home inspection prior to sale. This was especially true during the 2008-2012 recession when banks had an unusually high inventory of foreclosure properties that needed to be sold in order for them to continue making future loans. However, as the economy improved and new foreclosures returned to pre recession levels, the bank’s willingness to sell at a good discount (15%) became rare. Prior to the Coronavirus outbreak, banks were getting 95% of market value on R.E.O. sales on average in the markets. As a result, better deals could be found elsewhere.
After COVID-19 there are going to be a substantial increase in mortgage defaults due to the high unemployment that will result so we will begin to see more preforeclosure opportunities. Depending upon the economy and how quickly it recovers, we may see an increase in auction sales and then a larger discount in pricing for R.E.O.’s as well.