What is REO?
" REO" stands for " real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.
If you see a listing for a property that says "REO," it means that it's a property that the lender has taken back. It also means, more than likely, that the property will need some work -- people who lose their houses to foreclosure often neglect their upkeep.
On top of that, you can expect that getting a response to your offer will take longer than normal; with so many foreclosed homes on the market, the people who handle the sale of these homes are overwhelmed with work.
All that being said, you can often find good deals in a lender's REO inventory. If you have the time, the patience and good financing, there are lots of opportunities to be had. Best of luck!