---------------------------------------------------------------
Summary
Real Estate Owned or REO is a term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of foreclosure.

Whereas Foreclosure is the legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction, with the proceeds of the sale being applied to the mortgage debt.

Advantages of REO vs. Foreclosed Property
When you are thinking of buying an REO there are some distinct advantages that a buyer does not have with a foreclosed property.

First is that you are able to buy the propery in question on your schedule, as you do not have a foreclosure auction date to work with and around. You can make an offer for the home at any time, since you don’t have to wait for bidding to begin.

Second, another advantage of an REO compared to a foreclosed property is that you can inspect the property before you buy, wheras you cannot do this with the majority of foreclosed homes. Being able to inspect the property before you buy will let you know how big of a project you will be dealing with, in terms of home repair.

Usually REO properties also have the advantage of requiring the seller (the bank or lending institution) to disclose all the debts and liens against the property, where a foreclosure is not always required to do so.

Disadvantages of REO vs. Foreclosed Property
The major likely disadvantage of an REO property versus a house being sold via Foreclosure auction is the price. Foreclosures have very high risks around timing, getting the money you need, often not being allowed to inspect the house before the sale and so on. However, all that risk is taken by many investors because they may be able to buy a house at a price much lower than market value.

REO properties are another story. The lending institution has more time to sell the house and doesn't have to sell at a price the bank knows is very low. Often REO houses go for almost exactly the property value.