REO is a hot topic in the real estate industry these days. These are the properties that are owned by the lender after the homeowner has defaulted on their loan. While it is a known fact that these properties are usually available at a good price, we all know that lenders aren’t stupid either. They will sell the property to the public at the most rewarding price that is possible in the shortest time. They are not allowed to build and hold an inventory of properties till the profit is up.

Many entrepreneurs have been successful by acquiring real estate. Prospective investors see that there is good money in the real estate market, especially with REO properties. What the up and coming investor needs to know is that they must do their homework on traditional real estate market dynamics and most certainly on individual REO properties. Due diligence is an investors best friend and will be what makes them successful over assuming everything they are told or read is true. This includes the fact that REO properties may not always be the bargain they appear to be.
First there are some things you need to know on how these properties are sold. Selling a REO property is usually handled by a lender's asset management department who outsource marketing properties to real estate agents that they have formed strong working relationships with. 
Generally, the REO property will be marketed through a multiple listing service and the lender will place advertisements in local papers as well.

Second thing you should be aware of is that the REO property will be sold by the lender at whatever price they deem to be appropriate. Only when the lender cannot sell the property at a price that covers the unpaid loan on the property as well as the foreclosure costs, is it then offered at a discounted price. Basically, a lender is going to make every attempt to recover their losses.  The local economy is the measuring tool for pricing the property.

These prices may be deeply discounted, under or at the actual fair market value and offered to the public. They may even be priced higher if the local economy can justify such prices. So the general thought that all REO properties are offered at deep discounted prices is not a total truth.
If you are looking at REOs as a possible investment, you must do your homework and investigate all aspects of the property. You need to verify the rights and obligations in detail before you acquire ownership. Of all the products and industries you may consider investing in; real estate should get more than a casual examination before making a purchase. Buying an REO is almost always a great investment, but to make it a profitable one you have done your homework and know how to find a true deal.