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- Homes become bank-owned properties after homeowners default on their mortgages and the bank forecloses.
- If no one opts to buy a foreclosure home at auction, the bank or mortgage lender or servicer takes ownership of the property.
- Bank-owned properties may also be referred to as real estate owned, or REO.
- You can find bank-owned properties through sources like banks' online listings or RealtyTrac.
Whether you’re looking for a home to live in or use as an investment, you may come across a bank-owned property in your search. These properties can be listed for sale just like any other on-the-market home, but they aren’t owned by a homeowner — instead, they’re owned by a bank.
Bank-owned properties can be a fit for a specific type of homebuyer or investor, but they can be difficult to find in today’s market. Here are the basics to know, including how to find bank-owned properties.
What are bank-owned properties?
A home becomes a bank-owned property after the homeowner defaults on their mortgage and the bank forecloses. Bank-owned properties may also be referred to as real estate owned or REO homes, REO properties or simply REO. You might see a property listed with details like REO foreclosure, meaning a financial institution — not an individual homeowner — is selling the property.
Before becoming bank-owned, the property was likely available to buy as a foreclosure sale, but didn’t sell during that process. So, ownership officially transferred to the bank — the final step in reclaiming the property from the homeowner who didn’t keep up with their mortgage payments.
If no one opts to buy a foreclosure home at auction, the bank or mortgage lender or servicer takes ownership of the property.
Who buys bank-owned properties?
Anyone can buy a bank-owned property, but the buyer most likely to purchase one is someone hunting for a deal. Real estate investors, especially, view bank-owned properties as an opportunity to put a bit of money into the home and get more out via renting it to tenants or selling it to new owners.
“On rare occasions, there’s a tidy equity position to be realized by purchasing and rehabilitating a bank-owned property, either for occupancy, as an investment or a short-term fix-and-flip,” says Sam Olson, CRS, team lead of The Olson Group with RE/MAX Gold, based out of Nevada.
The upfront cost of an REO property may translate to a worthwhile ROI (return on investment), but not always. For example, the average purchase price of an REO in Reno was 90 percent of the value when sold traditionally — a “tight margin,” says Olson.
Buyers often have to spend more money after the sale, which can eat into profit. That’s because bank-owned or REO properties typically require work. After all, if the previous owner couldn’t keep up with mortgage payments, they likely couldn’t keep up with maintenance, either.
“For the casual or first-time purchaser, an REO purchase has very high risks for a smaller-than-imagined reward,” says Olson.
Pros and cons of bank-owned properties
If you still want to know how to find bank-owned properties, there are a few things to consider first. The main perks and drawbacks of REO homes include:
Pros of bank-owned properties
- Lower price: The most obvious upside to a bank-owned or REO property is the potential to get the home at a discount. With home prices still rising, any savings in today’s market is good news.
- Long-term earning potential: If you manage to find an especially good deal and then get the property in pristine condition, you may be able to reap the benefits of selling it to a new buyer or renting it out on a regular basis.
Cons of bank-owned properties
- No chance of concessions: In a traditional home sale, a seller might give a buyer a credit, or concession, for something that needs to be fixed. For example, if a home inspection reveals that the furnace needs replacing, the seller might offer a small discount on price. That is not a standard process in a bank-owned transaction. “Most banks will allow inspections,” says Olson, “but will not provide any assistance in repairs, which can add up quickly.”
- Longer timeline: If you submit an offer for a bank-owned property, multiple parties need to approve the price, so settling on a number may take longer than it would if you were dealing with one seller.
- Repair costs: After you settle on a price, get ready for more expenses once you start addressing issues in the home. You may have to do extensive renovations and repairs.
How to find bank-owned properties
You can find REO properties by searching RealtyTrac’s listings, or you may be able to compare properties on a bank’s website. Bank of America, for example, maintains an online hub of REO listings. Wells Fargo also has a directory of bank-owned properties.
Online home auction sites can also help you find bank-owned properties. Options like Auction.com and HUDHomesUSA (which isn’t actually affiliated with the U.S. Department of Housing and Urban Development) can let you filter by REO foreclosure, meaning you can find bank-owned properties relatively easily.
You can also find institution-owned properties on government websites like the Department of the Treasury’s real property auction webpage or the Federal Deposit Insurance Corporation’s list of properties that this agency has taken over from failed banks.
If you really want to know how to find bank-owned properties in your area, the right real estate agent can help, too. Look for an agent or broker that specializes in REO homes.
Plus, regardless of how you initially search for these types of properties, it can be invaluable to enlist some assistance in actually making it yours, especially if you’re new to a bank-owned transaction.
“For whatever purpose a buyer is considering REO — owner occupancy, rental or flip — a Realtor with experience in the distressed property submarket and bank negotiations is essential,” says Olson.