Foreclosed Properties Face Negative Stigma: Study

Depending on who you listen to, a mad rush to buy foreclosed real estate is either on or about to begin; a study released Tuesday by real estate listings firm Trulia.com and foreclosure listing specialist RealtyTrac, however, seems to dispute that notion.

A study by the two firms, conducted by Harris Interactive, found what was described as “notable decreases” in consumers’ willingness to buy a foreclosed property. Those that do have an interest in buying overwhelmingly expect REO inventory to be priced 25 percent below the rest of the market, the firms said in a joint press event. Three in ten U.S. adults said they expect a 50 percent discount, even.

In the previous survey conducted seven months ago, 54 percent of all U.S. adults surveyed said they would consider purchasing a foreclosed home, whereas now 47 percent of U.S. adults would consider purchasing a foreclosure — a drop of seven percentage points in only seven months, likely reflecting overall hesitation towards housing, but also suggesting that much of the rah-rah talk around foreclosure investing might be overblown by those with an interest in profiting from it.

During the last seven months, negative sentiment around buying a foreclosure rose, as well, the study found. In April 2008, 69 percent of U.S. adults originally felt that there were negative aspects to purchasing a foreclosed home; that number is now up to 80 percent, with respondents citing hidden costs, risky process, home losing value and personal connection with foreclosure as the core concerns detracting from a possible purchase.

To compensate for perceived risks, consumers expect hefty discounts on foreclosed homes, the study found.

“What’s significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them. Misinformation around foreclosures abounds and that’s dangerous for the market and for homebuyers,” said Pete Flint, co-founder and CEO of Trulia.

“The results of this study are eye-opening and highlight the need for consumer education about foreclosures. Being that the sale of foreclosed properties has been on the rise due to the increased inventory and discounts available on foreclosed homes, it is somewhat counterintuitive — although not totally unexpected — that consumers are more hesitant to purchase a foreclosed property,” said Rick Sharga, senior vice president of RealtyTrac.

“We expect that foreclosures will continue to dominate the market in 2009, and well-educated consumers will be able to find great deals on these properties.”

– Kelly Curran contributed to this report.

Write to Paul Jackson at paul.jackson@housingwire.com.