Stigmatized property might be a red flag in real estate. What does stigmatized propertymean and should you buy it?
“Stigmatized property” can be a loaded phrase in real estate. A stigmatized property might include a broad range of cultural, societal or social issues from the property’s past.
If you’re looking for a deal, stigmatized properties might be an option to consider as a way to land a great home in a competitive market at a below-market price.
What is a stigmatized property?
A stigmatized property may sell for as much as a 25% loss and can bring down property values in the neighborhood. For buyers, a stigmatized property can mean “an adverse event took place that causes a negative reaction in those who hear about it,” said Bill Gassett, a real estate agent with Maximum Real Estate Exposure in Hopkinton, Massachusetts.
Be open and communicative with your real estate agent when listing a home or property associated with a stigma. They can determine what you legally need to disclose to a prospective buyer. Otherwise, you may not be complying with all legal requirements, opening you up to liability. The last thing you want is to lose a sale by failing to disclose a stigma.
If you’re looking at a stigmatized property, be aware of your rights as a buyer and the information you are legally entitled to from the sale. You’ll also want to consider your own personal preferences and limitations for what you are willing to live with.
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Types of stigma associated with property
What counts as a stigma can be highly subjective. Certain types may be more meaningful to prospective buyers than others. There are a few common types of stigma, however, that tend to leave a negative impression when selling a property, so you want to be mindful of navigating this with your real estate agent.
Death of a previous tenant inside the property
The death of a previous owner or tenant may or may not be a significant issue. Disclosure of the death and its impact on the property value can depend on various factors. If a previous dweller passed away in the home, it could lower the value by up to 25%, and the home can stay on the market up to 50% longer. However, whether a prospective buyer should be made aware is not clear-cut.
For example, if the body was discovered in a timely manner and biological materials didn’t damage the home’s framework, you likely won’t be told about the previous owner’s death in the sale of the home except in select states.
However, if a body went undiscovered for a long period, causing damage or a lingering odor, or the previous owner died gruesomely, such as by murder, then disclosure of the death may be required.
Notorious or infamous properties
The stigma associated with a notorious property can be a major consideration in the sale process. This link to the past may be a bragging right for some prospective buyers but a potential nightmare for others. Depending on the nature of the property, the stigma may raise or lower property values throughout the sale process.
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Suppose you’re considering a home owned by a former gangster who used the house for various drug and racketeering dealings, murders and may have even included escape routes to other nearby properties—then it could be a historical attraction.
If a property is associated with a local gang, drug dealer or the production of various drugs or illicit substances, you may have to disclose as much during the sale process. There may even be lingering damage to the property due to these activities, which could necessitate further clean-up before it’s move-in ready.
Superstition can be a powerful motivating factor—such as in the case of the Lizzie Borden House, which now operates as a bed and breakfast. Not everyone wants to sign up to spend night after night alongside otherworldly roommates and the surprises they may bring, such as the pitter-patter of footsteps in the hallway or doors unexpectedly opening and closing. Modern science may debunk some of these claims, but if you believe your property may be haunted it’s best to be upfront with your real estate agent.
If a person was murdered on the property, such as in the Charles Manson murder case that captured nationwide interest in the late 1960s, sellers are legally obligated to disclose this information in most US states.
Perhaps less obvious than some of the more sordid entries on our list, if your property’s previous occupants were in major debt and suffered constant visits from debt collectors or loan sharks, then this may require disclosure. It may even be legally necessary to settle these debts as part of the sale process, especially when dealing with liens imposed by the IRS.
Do you have to disclose stigmatized property?
“If you represent the buyer, you must disclose the existence of stigma to the buyer. However, for seller reps, there’s no legal obligation to do so," said Eyal Pasternack, a licensed real estate agent and expert based in Miami.
That said, homeowners should always disclose a property’s stigma when communicating with their real estate agent. They will be best equipped to advise on local and state laws and how to stay covered throughout the sale process. Not all states require notification for all the previously mentioned stigmatized property types.
Whether you need to disclose a stigmatized property also depends on where you’re located. For example, Illinois and California each have unique requirements for selling a house:
California: If anyone has died on the property within the last three years, provided that the cause of death was not related to HIV or AIDS, prospective buyers must be made aware during the home-sale process.
Illinois: If the home was used for cooking meth, you should share this critical information with prospective buyers.
Stigmatized property vs. condemnation
A stigmatized property isn’t the same as a condemned property. A condemned property has been explicitly deemed uninhabitable; it may also be the result of a financial crisis or it may be a target of a local government entity citing eminent domain for a public works project.
Condemned property will either need extra financial support or must undergo repairs to be fit for human living again. And that’s assuming such repairs are even possible. In some unfortunate cases, the property’s condition may cause it to be marked for demolition.
Is stigmatized property cheaper?
Stigmatized property isn’t always cheaper than the alternatives, but in most instances a buyer or seller can expect a decrease anywhere from 10% to 25% of the property value, with some properties worse off than others. This financial burden may even extend to your neighbors.
The value of the property will come down to the circumstances around the stigma. Rumors of a haunting may not carry much weight, and you could still get a great deal on a home. A grisly murder or a meth lab on the property could be a major deterrent that lowers a home’s value. If you’re considering stigmatized properties, reflect on what you’re willing to live with and what you’d walk away from.
Let’s consider the pros and cons of buying a stigmatized property:
- You can get a property in a competitive area.
- You may save cash on the purchase.
- Resale of the property may be a challenge.
- You may not be embraced by all of your neighbors.
- Despite improvements to the property, you may make less money on a resale.
Speak to neighbors, check property records, work with a real estate agent and be sure to have a lawyer in the closing process. As always, make sure you have title insurance. Put in the necessary legwork to protect yourself and your investment.
Buying and selling stigmatized property: Should you?
If you’re selling a property and fail to disclose a stigma, it could eat your profits and get you into legal trouble. Not only could failing to disclose a stigma cause a sale to fall through, but failing to disclose a known stigma may also lead to a lawsuit which will cost time, money and may even require you to travel back to a local court to settle the matter. The last thing you want is for a prospective buyer to walk away and for the word to circulate in the neighborhood as to why this happened. Always be up-front and honest with your real estate agent, who can help look for the right prospective buyer and ensure compliance throughout the sale process.
If you are looking in an area that costs more than you can afford, considering a stigmatized property could be a great way to make it possible. When looking at a property with your agent, be upfront about what’s a deal-breaker. Don’t hesitate to ask hard-hitting questions, such as if there’s any history of previous occupants passing away on a property (and how it happened) or if the home was ever the scene of a crime. Your real estate agent is your first resource and line of defense.
While each state has its own requirements about what information prospective buyers are entitled to, it’s often the buyers themselves who must take the initiative and research a property thoroughly ahead of purchasing it.
Stigmatized properties may not be for everyone, but they can be an excellent opportunity for the right buyer. Be communicative, upfront and proactive in your selling or search process to help lock in the best deal for you and your family.