What an REO is
REO stands for Real Estate Owned. These properties that have already gone through foreclosure and are now owned by the bank or mortgage company. The REO property did not find a buyer during foreclosure auction and therefore the bank now owns it.

Buying REO Properties
Banks are in the business of making loans, not managing real estate. You must be very careful when buying REO's if your intent is solely to make money off of it. Banks are  typically anxious to sell them quickly but keep in mind that they are also interested in receiving as much money as they can from them. When considering the value of a REO, you must look closely at the comparable sales in the neighborhood and take into account the time and cost of any repairs or remodeling that may be required to prepare the house for resale. You must also keep in mind that there are many REOs that are not good buys and not likely to turn a profit.

Ready to make an offer on REO's?
Most banks have a REO department that you'll work with and typically they will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you'll want to contact the listing agent or the banks REO department and find out as much as you can about the property and what their process is for receiving offers. Since banks almost always sell REO properties "as is", be sure to include an inspection contingency in your offer that gives you time to check for hidden damages and terminate the offer if you find it undesirable. As with any offer on real estate, your offer will be much more attractive if you include documentation of your ability to purchase the property via a pre-approval letter from a lender. After you've made your offer, you can usually expect the bank to make a counter offer and further, it is not unusual for the process of offers and counter offers to take days or even weeks.