Distressed property auctions outperform traditional REO sales

Auction.com released its 2025 Disposition Strategy Report on Wednesday, showing that distressed property sales at auction have increasingly outperformed traditional retail real estate sales over the past two years.

The report analyzed more than 390,000 distressed property dispositions from January 2018 through September 2025, using Auction.com data and public records.

Estimated net proceeds for auction sales — including foreclosure auctions and bank-owned (REO) auctions — were 43% higher than traditional REO dispositions through the third quarter of 2025, the report explained.

“The time value of money principle — that a dollar today is worth more than a dollar in the future — is key to understanding why earlier dispositions perform better, coming into even sharper focus in a slowing market,” said Jason Allnutt, CEO of Auction.com.

REO inventory, measured by the time held by a mortgage servicer, rose to 897 days through the third quarter of 2025, up 77 days compared to 2024 and 179 days from 2023.

In contrast, REO auction sales averaged 320 days in inventory — down 16 days from 2024 and down three days from 2023.

Foreclosure auctions bypass REO inventory entirely, as properties are sold directly to third-party buyers.

“In this market, your first offer is usually going to be your best offer,” said Tavia Dowden, a Pensacola, Florida, who helped a local homeowner sell pre-foreclosure through Auction.com’s SmartSale program.

Surplus funds, retail ownership

More than half of foreclosure auction sales in 2025 generated surplus funds above the debt owed, compared with 3% of REO auctions and 16% of traditional REO sales.

The average surplus per foreclosure auction was nearly $57,000, available to junior lien holders and homeowners after junior liens are settled.

Since 2018, Auction.com reported that foreclosure auctions through its platform have generated $2.8 billion in surplus funds.

More than half of homes purchased at auctions since 2018 have been resold — with 77% of these resales going to owner occupants as of the third quarter of 2025.

This retail homeownership rate is 10% higher than for traditional REO dispositions, and it’s consistent in both underserved neighborhoods and Opportunity Zones.

Faster resales, affordability

Properties purchased at auction and resold within a year were returned to the retail market in 189 days on average — 247 days faster than with traditional REO sales.

During this period, properties increased in value by an average of 36%, compared with 8% over 436 days for traditional REO sales.

Despite the higher value additions, auction property resales remain affordable. Since 2018, auction-purchased properties averaged $289,000 at resale, 23% below the average retail sale price of $375,000.

Monthly payments for renovated auction properties require 27.6% of median household income, with a higher percentage in underserved neighborhoods (32.4%) and a slightly lower one in Opportunity Zones (27%).