There are broad ways of explaining REO but just to simplify the term, REO stands for Real Estate Owned. These are properties owned by banks or financial institutions most of the time it is a group of houses.
REO’s are sold through auctions or directly sold it to buyers as they tagged it “bank owned”. In directly selling the property the lender usually want to speed up the selling process. but on auctions they will wait for the highest bidder. which normally flops.
Usually the lender is not able to close the deal in auctions because they are not satisfied with the bid.
Banks also do not want to have these properties in their hands for long because it would not give them any return of investment that’s why they put these properties on REO status.
Large real estate companies are the ones buying REO’s. They get the properties on a low price but gets more profit by reselling the property at a high price.