156 Hamilton St., Leominster, MA

I have had a few clients ask me recently about the difference between buying a property at a foreclosure auction and buying a property owned by a bank (REO/Real Estate Owned).

A property purchased at a foreclosure auction or foreclosure sale is purchased through a bidding process by individuals at the auction. The property is sold to the highest bidder. If the foreclosing lender is not satisfied with the amount of the bids they may also bid on the property to raise the selling price. In the end the lender often ends up as the highest bidder and takes ownership of the property. Property that is acquired by the lender in this process is called REO property or Real Estate Owned property. The lender will in turn, eventually, place this property on the market with a Realtor for resale to the public.

Although a buyer may be able to get a better price on a property at auction, they may not be able to do a thorough property inspection. The property may be occupied by the prior owner, who will need to be evicted.  There are many more risks associated with buying a property at a foreclosure auction then through an REO sale.

With an REO sale a prospective buyer submits a written offer just as they would with a conventional seller. There is usually an opportunity to conduct a home inspection with an REO property.  Although both properties bought at auction and properties bought from a lenders REO inventory are sold “as is” often the terms of an REO sale may be negotiable. REO properties are sold free of occupants and tenants.

For the average first time home buyer, I would recommend considering purchasing an REO property over a foreclosure auction property.