Hi Heather, one thing strikes me as interesting here is the spike in the search terms “what is foreclosure” and “free foreclosure listings.” That suggests to me that what consumers are looking for is not necessarily foreclosed properties, but bargains.
We should probably start by defining “what is foreclosure.” The Bloomberg story you link to about rising foreclosures is based on numbers from RealtyTrac, a data aggregator which actually tracks foreclosure-related filings.
That’s an important distinction, because it includes not only homes repossessed by lenders (“foreclosed homes”), but “pre-foreclosures” subjected to default notices or scheduled for auction because buyers are behind on payments. Not all of those homes are actually going to complete the foreclosure process. In some cases, borrowers may be able to refinance into more affordable loans, or work out a loan modification or repayment plan with their lender.
So, what exactly is a “foreclosure listing?”
A “listing” usually refers to a home that’s for sale. Most of the time it’s been placed in a multiple listing service (MLS) by a real estate broker or agent to advertise to other agents and consumers that it’s for sale.
Sites like RealtyTrac allow users to see homes that have been subjected to legal notices by loan servicers, warning homeowners who have gotten behind on their payments that lenders are taking steps to repossess their homes or sell them at auction.
When you go to RealtyTrac or other Web sites that offer “foreclosure listings,” you will see many distressed properties that are not actually for sale, because their owners are still trying to avoid losing their homes. Foreclosure listings sites may also include homes that are already in the hands of lenders (real estate owned, or REO properties), but have not yet been put up for sale.
You may also find homes whose owners have fallen behind on their payments and are hoping to persuade their lender to agree to a “short sale,” in which they sell their house for less than what they owe on their existing mortgage. Like REO properties, if these homes are represented by a real estate broker, they will also show up on traditional MLS-based listing sites.
The bottom line is that not all homes that are in the foreclosure process are actually for sale, and many of those that are will be listed just like any other home.
So-called “foreclosure listing” sites may provide bargain hunters with the inside track on short sale and REO properties, but there can be pitfalls to purchasing these homes — prolonged or fruitless short sale negotiations with lenders, clearing “clouds” on the title (claims by others on the property, including tax liens), or undisclosed problems with the house itself (like a bad roof or cracked foundation).
That is not to say that sites like RealtyTrac do not perform a valuable service. Because RealtyTrac has one of the most comprehensive data sets on foreclosure-related filings available, their numbers are often cited by government regulators and elected officials, and RealtyTrac reports receive widespread media attention.
My guess is the spikes you are seeing in “foreclosure” related keyword searches coincide with RealtyTrac’s monthly and quarterly reports, and the resulting media stories like the Bloomberg article you link to.
What is interesting is how consumers react to those stories. Your discovery that many want to know “what is foreclosure” and also seek “free foreclosure listings” suggests A) a lot of people who don’t know much about foreclosures are hoping to cash in, and B) they would rather not pay for information about foreclosures in their neighborhoods.
There’s no doubt that “distressed properties” — homes that banks have foreclosed on, or which may be headed for foreclosure — are creating tremendous price competition in many markets, and not only for builders but anyone trying to sell “non distressed” properties.
The National Association of Realtors has estimated that distressed properties (foreclosed homes and short sales) accounted for 45 percent of all home sales in the last three months of 2008.
That’s put a lot of downward pressure on prices. In California, which has the largest number of homes in the foreclosure process and the third-highest foreclosure rate, the median home price was down 40 percent year-over-year in January. Twice as many homes were sold that month as the year before, and the supply of homes for sale fell from 16.6 months to 6.7 months.
But that brings us back to the original question: Are consumers looking only for foreclosed properties, or bargains in general?
I sat in on a conference call today in which California-based ZipRealty CEO Pat Lashinsky briefed investors on the company’s fourth quarter results. (ZipRealty agents handled 42 percent more transactions, but because home prices are down, commission revenue per transaction was down 16 percent).
A Deutsche Bank analyst asked Lashinsky whether buyers were moving away from buying homes through the traditional process, and more interested in short sales and foreclosed properties.
Lashinksky said most ZipRealty clients come in with hopes of finding an REO or short sale property, because they think they will get a better deal. Once they get into the process and learn about the tradeoffs and risks, they also start looking at other, non-distressed homes.
Lashinsky said because ZipRealty agents have a high level of experience, they can help buyers close a deal on whatever home they are looking for, including short sale and REO properties.
If you visit the ZipRealty site, you’ll see they are quite aware of consumer interest in foreclosures. The site offers a “Search for Foreclosed Homes” tool. If you read the fine print, you’ll see that the search tool returns “homes where the foreclosure process has been completed and the home is now owned by the lender, also known as REO properties” and which are listed in an MLS.
RealtyTrac provides a wealth of information on their site about buying distressed properties.
But some consumers may not understand that a property included in a database of “foreclosure listings” may not actually be for sale. That may be even more true when pre-foreclosure properties — those that have merely been subjected to notices of default or scheduled for auction — are mixed in with for sale listings at sites like Yahoo! Real Estate and Trulia.
I guess the question becomes whether Web sites that seek to capitalize on consumer interest in foreclosures have a duty to clearly differentiate pre-foreclosures from “for sale” listings.

Hello Heather,
I think that both of you bring up an excellent points. One thing is for sure, is the homebuyers are looking for information but a portion of the searches probably come from those facing foreclosure in the near future.
Often, those who cannot modify or refinance their toxic loans are told they will be headed towards foreclosure, so the term “what is foreclosure” maybe an indicator of the number of people facing that unfortunate situation.
I also think it could indicate the research phase of those thinking of purposely letting their homes go to foreclosure because they are upside down and they want to learn about the process and the repercussions.
As Matt brings up, there is a significant difference between a foreclosure that
is actually offered for sale and those simply entering into the foreclosure process as found on many foreclosure sites. Consumers are looking at multiple real estate websites to reference if the foreclosure property is actually available or not and you will probably see a steady growth in terms like “bank owned” and “REO” as searchers learn the proper terminology.