REO: 5 Stages of REO Simplified

You see the FHA delinquency rates increasing again, and have you heard how much money can be made acting as the seller of investor or servicer bank-owned property?

You see the FHA delinquency rates increasing again, and have you heard how much money can be made acting as the seller of investor or servicer bank-owned property? While becoming a sub-servicer or asset management company that liquidates REO can be lucrative, REO sales vary quite differently from a traditional sale. You need to create a strong vendor network and, most importantly, have a good REO technology solution in place. This is the only way you will be able to connect and interact with all the pieces of the supply chain and standardize your operations process to not only be awarded the business but keep it as well.


Assign the listing to an REO Broker or Agent that knows their market. They will help you determine if the property is occupied or vacant. Also, order a Broker Price Opinion to determine the property value, which impacts the marketing strategy. If you use the listing agent assigned to the property to get your initial valuation, you won’t have to pay extra because they will receive a commission once the REO property is sold. Knowing the current value of the property, its current unpaid balance, and how that market is performing will be determining factors in your liquidation strategy.

The niche REO market has traditionally been difficult to break into, but technology creates more opportunities for agents to learn the business and connect with asset managers.



If you have determined the property is occupied, you need to get a full assessment on it. Is it multi-unit? If so, are all units occupied? Is there a bankruptcy filed on the property? It is advised to contract with an eviction attorney who knows the rules and regulations. In some cases, you can simplify the eviction process by offering cash for keys. In others, you may have a long eviction road ahead of you. An experienced eviction specialist can walk you through the process and ensure you remain within state-specific guidelines.

"Lenders repossessed 3,831 U.S. properties through completed foreclosures (REOs) in February 2023, dipping 2 percent from last month but increasing 45 percent from last year."



Knowing the property’s current value, its current unpaid balance, the current state of the property compared to other listings in that area, and how that market is performing will be determining factors in figuring out your marketing plan. Will the property sell for more if you perform repairs? If so, you don’t want to overpay for these repairs or upgrade it to the point where you will no longer see a return. In addition to working with a Real Estate REO Agent, you may also consider working with a property preservation company specializing in default. There are a lot out there, but five or so of them have been doing this for a while and can be a valuable resource during this stage.

Lenders started the foreclosure process on 20,752 U.S. properties in January 2023, down 1% from last month but up 75% from a year ago.



You are ready to list the property. Make sure you have a Listing contract signed that details your expectations, and get the assigned Listing agent to put your listing on MLS. Make sure you get proof that it is up there. The last thing you want is for them to do pocket listings and not bring all buyers to the table. Are you considering Auction? Again there is a small number of auction companies that specializes in auctions for REO assets. Make sure you talk to them before the broker puts it up for a traditional sale through the MLS.

Lenders repossessed 42,854 properties through foreclosures (REO) in 2022, up 67 percent from 2021.


Under Contract

Once a buyer has been secured for your REO asset, work with a closing company that has experience with REO closings. You are acting as the seller for the REO asset, and it will likely not be in an area in which you reside, so a local company is a must. In the last REO wave, there were a lot of closing companies out there that specialized in this, and with the compression of the market, the ones remaining will likely be experienced. Remember that this is just one of many in your REO inventory, but this asset is much more for the buyer. The market is continuing to shift, and having a buyer walk away will be more and more detrimental if this trend continues. Especially since most investors are grading you based on the sales price, the days on the market, and the amount of time it took to close.

On a portfolio level, servicers and industry participants such as ratings agencies measure the total inventory “turn” rate on a month-to-month basis—that is, the number of property closings as a percentage of the number of REOs in inventory at the beginning of the period.

Source: Federal Reserve Bank of Boston