To simplify the term REO, it is a Real Estate Property owned by banks or financial institutions. Usually a group of houses.
Selling REO can be a direct selling where in it is offered to a buyer or investor or they sell it through auctions.
Unfortunately even an auction sales will not satisfy the lender to agree on sale of the home and would not be able to get any bids.
Putting properties on REO status is what most banks are doing if the lender are not able to close the deal in auction sales. this way they could sell the property easily and get away with too much cost on up keeps of the property.
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.