Is There A Difference Between An REO And A Bank-Owned Foreclosure?

Hi Andrea, Great question.

There is usually a lot of confusion about these types of properties.

Real Estate Owned (also known as an REO) is the same as a “Bank Owned Foreclosure”. Sometimes there are several names for the same situation, but basically there are 2 main types of “foreclosure” situations

Short Sale – which means the mortgage holder is the owner and cannot sell the home for enough to cover what is owned on the mortgage or mortgages and other liens. Usually somewhere in the listing you will see the terms “Short Sale, “subject to 3rd party approval”, “subject to lender approval” or some similar phrase. In these cases, the owner is involved and must sign as the seller, but the offer is not accepted until the lender(s) agree to a settlement to allow the home to be sold with them taking a loss. These transactions can be very time consuming as there are sometime multiple parties that have to sign off selling the existing mortgage for less than what is owed. If you do not have the ability to wait out delays, and put up with bureaucratic demands than this might not be the best avenue.

However if you are not tied into a timing issue and have the ability to walk through the many approval processes than sometime this is a great avenue to aguire a property on favorable terms. Many times there are expenses that a buyer has to participate on in these deals that are customarily sellers expenses in normal real estate transactions so your Realtor® will need to make sure what expenses will be allowed and what expenses will be for your account when making an offer. It will effect the finale price you will purchase the property for. I.E. – survey costs, title/attorny costs, HOA/tax/mechanics leins may all be expenses that the selling entity will not pay.

Many short sales do not sell except through the county auction process where the bank becomes the owner.

2. REO – These are the homes that have completed the foreclosure process and are purchased at auction by the bank (or the owner has agreed to give them to the bank). These generally take less time and will sell. The bank is the owner now, and they usually hire an agent specializes is selling REO homes.

The key difference is who actually owns the home. The county tax records do not always show the bank as the owner, so you or your Realtor® need to get the details from the listing agent.


We get a lot of inquiries from consumers looking for good deals and these are the type of properties they usually have in mind. Sometime they can be considered a good deal depending on the market where they are selling but sometimes if a market is strong you may not get as good a deal because the bank owning the properties are aware of the values in the market place and may try and get a better return on their investment.

Both of these types of transactions are cumbersome and full of potential pit falls so you really need a professional Realtor® to help navigate the process. In 95% of the cases the Realtor® fee is assumed by the selling entity (bank, investment or private owner) and is calculated into the finale selling price by the seller. However there are cases where this may not be the case so make sure your Realtor® has had some experience with these types of sales.

If you have any further questions please Email me @ rkenney51@gmail.com or Text me : 512-922-4922

Have a great New Year and thank you for your question!

Regards,

Robert Kenney, Realtor®

VP Turnquist Partners Realtors

Mobile/Text: 512-922-4922