What is it?

REO stands for "Real Estate Owned". These are properties that have been through foreclosure and are now owned by the bank.The REO property did not find a buyer during foreclosure auction. 

The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.

What to look out for

REO's may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement normally requires the sellers to tell you about any defects they are aware of with their property

Banks always sell REO properties "as is", you should include an inspection contingency in your offer that gives you time to check for hidden damage and cancel your  offer if you find Problems

Is it "easy money"?

You have to be very careful about buying a REO if your intent is to make money. The bank does want to sell the property, but they also want to make as much as possible on the sale. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and not likely to be profitable.

How to "beat the competition"

Your offer will be more attractive if you can include proof of your ability to pay. A pre-approval letter from a lender or loan pre-qualification is recommended, along with a 3% good faith deposit and as large a down payment as possible. Many properties will sell for over the asking price. This is something you should keep in mind when making your offer. After you've made your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter.. This process can take weeks...or longer! So be prepared to wait.