What Are Bank Owned (REO) Homes
Bank owned homes (also called Real Estate Owned or REO) are properties that have gone through foreclosure and now belong to a bank. If a homeowner defaults and the foreclosure auction fails, the lender takes possession. The bank then sells the property to recover its losses.
These homes differ from pre-foreclosure and auction properties. In pre-foreclosure, the homeowner is still involved and may try to sell before losing the house. At auction, the property sells on the courthouse steps to the highest bidder, usually requiring cash and offering no inspection. Bank owned homes sell through traditional real estate channels, usually with clear title and sometimes with financing options. They sit between a regular sale and a distressed auction.
According to ATTOM Data Solutions, national REO counts surged more than 53% month over month in December 2025, signaling a rising supply of bank owned homes. This increase gives buyers more chances to find a bargain.
How a Home Becomes Bank Owned
The journey from a missed payment to a bank owned listing takes several months, sometimes over a year. After a homeowner defaults, the lender files a notice of default, starting the pre-foreclosure period. If the homeowner cannot catch up or sell, the property goes to a foreclosure auction. If no one buys it at auction, the lender takes it back. That’s when it becomes an REO.
Banks are not in the business of owning houses. They want to sell quickly, but they also want a fair price. That’s why they often list REOs on the multiple listing service (MLS) and work with real estate agents. Some banks even fix up properties before selling, making them more attractive to owner occupants.
Step by Step Guide to Buying a Bank Owned Home
Buying a bank owned home follows a similar process to a regular home purchase, but with extra steps and cautions. Use this practical guide to avoid common mistakes.
Step 1, Understand the Risks and Rewards
The biggest reward is price. Banks often price REOs below market value to move them quickly. Expect discounts of 10 to 20 percent compared to similar non-foreclosure properties. The downside is condition. Many bank owned homes are sold as-is, meaning the bank won’t make repairs. You might inherit hidden problems like plumbing issues, roof leaks, or mold. Always budget for inspections and repairs.
Step 2, Find Bank Owned Listings
Look for REO properties on several websites. Free options include Zillow’s foreclosure center and Realtor.com’s foreclosure filter. Paid services like Foreclosure.com or Auction.com offer more comprehensive data, including pre-foreclosure and auction listings. Free sites work for casual browsing, but paid sites often have more complete and timely information.
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That’s why we recommend you compare the best foreclosure websites before committing to a subscription. A side by side look can save you time and money.
Step 3, Get Financing Pre Approval
Before making offers, get pre-approved for a mortgage. Banks take REO offers more seriously when they know you can secure financing. Some banks even require a pre-approval letter with your offer. If you plan to pay cash, have proof of funds ready. Some REOs qualify for conventional, FHA, or VA loans, especially if the home is in decent shape.
Step 4, Work with a Real Estate Agent
An agent experienced with REO transactions is invaluable. They know how to negotiate with bank asset managers, understand the addendums, and can spot red flags. Some banks require you to use their approved agent, but you can still have your own buyer’s agent. The bank usually pays the commission, so it costs you nothing extra.
Step 5, Inspect and Make an Offer
Never skip the inspection. Hire a licensed home inspector to examine the property thoroughly. Even if the bank won’t fix anything, you’ll know what you’re buying. Once you have the inspection report, decide how much to offer. Banks often counteroffer, so leave room for negotiation. Be prepared for a slow response. Banks can take days or weeks to reply.
Step 6, Close the Deal
After your offer is accepted, you’ll enter the closing period. The bank will provide a stack of paperwork, including an as-is addendum. Your lender will order an appraisal. If the appraisal comes in low, you may need to renegotiate or bring extra cash. Once everything is signed, you’ll get the keys. Congratulations, you now own a bank owned home.
Where to Find Bank Owned Homes Online
The internet is your best tool for finding REO listings. Here are some of the most popular websites, broken into free and paid categories.
Free Foreclosure Websites
Zillow Foreclosure Center is a good starting point. It’s free and integrates with Zillow’s familiar map interface. You can filter by foreclosure status, but the data may be incomplete or lag behind the MLS.
Realtor.com Foreclosures pulls directly from local MLS databases, updated every 15 minutes. This makes it accurate for bank owned properties listed by agents. It’s free and reliable for REOs, though it lacks pre-foreclosure and auction listings.
HUD Homestore lists foreclosed homes insured by the Federal Housing Administration. Individual buyers get a 30-day priority period before investors can bid. You must work with an HUD-registered agent to submit an offer.
HomePath by Fannie Mae and HomeSteps by Freddie Mac are sources for REOs from conventional mortgages. They offer priority bidding windows for owner occupants and sometimes closing cost assistance.
Paid Foreclosure Websites
Foreclosure.com charges about $40 per month after a free trial. It boasts over 1.8 million listings across all foreclosure stages, including tax sales and bankruptcies. The subscription is necessary to contact agents or place bids.
Auction.com specializes in foreclosure auctions, including bank owned properties that didn’t sell at auction. Browsing is free, but winning a bid typically requires a 5% buyer’s premium. Auctions are high-risk, often cash-only, with very short closing timelines.
PropertyShark is a data service for serious investors, with deep property records in major metro areas. Plans start around $50 per month. It’s less about listings and more about due diligence, like liens, permits, and sales history.
Making Your Decision
Buying a bank owned home can be a smart move if you’re patient, thorough, and prepared for repairs. The discount can be substantial, but the process is not for everyone. If you’re a first-time buyer with limited renovation budget, you might prefer a well-maintained REO from HomePath. If you’re an investor with cash reserves, you might explore Auction.com for deeper discounts.
No matter which path you choose, educate yourself on the local market and the specific property. Use multiple sources to cross-check listings. Talk to a real estate attorney if you have questions about contracts. Remember, the goal is to find a home that fits your needs and budget, not just a foreclosure deal.
Take your time, do your homework, and good luck with your search.
