According to the NAR, a ‘stigmatized’ property is a place that has been ‘psychologically impacted by an event which occurred or was suspected to have occurred’. It’s where there is no physical defect — the property itself could be in great shape. It’s not like a leaky ceiling or bathroom mold that’s visible to the naked eye. Someone unaware of the property’s history couldn’t recognize that a home is stigmatized simply by looking at it.
Stigmatized properties include the sites where suicides, murders, and serious assaults have occurred. They could also be homes where other crimes have happened, such as drug activity, or homes that are allegedly haunted. Or they might be places that are notorious locations or where the previous owners are well-known.
Examples of Stigmatized Properties
The Los Angeles rental property where Sharon Tate and six others were murdered by Charles Manson in the 1960s is an example of a stigmatized property. Following the tragedy, the owner of the home had to move back in. Almost two decades later the home sold for $400,000 less than the listing price. The home eventually was demolished in the 1990s and a new home was built on the land. The owner even changed the address in an effort to avoid the stigma that had long troubled the property.
It was reported that Nicole Brown Simpson’s condo sat on the market for more than two years before selling due to the stigmatization that followed after her death. When it did eventually sell, it was reportedly for $100,000 less than Simpson paid for it originally. To try and escape the notoriety, and deter macabre tourists, the owner of this property changed the address in the 1990s.
In Stambovsky v Ackley (1991), a buyer of an allegedly haunted home in Nyack, New York successfully sued a seller. The buyer wasn’t local to the area and didn’t realize the extent of the ghost stories relating to the property. He sued on the basis of misrepresentation by the seller and real estate agent. This case is sometimes referred to as the “Ghostbusters Ruling”.
Educate Your Sellers
Selling stigmatized properties can be a challenge for both the sellers and for the real estate professionals trying to sell them. Stigmatized properties typically sit on the market for longer and sell for less. Sellers need to be realistic about their chances of selling and be prepared to sell for a lower price.
Astute buyers not particularly phased by a property’s history can pick up a bargain, if they’re willing to take on the psychological impact of stigmatized property. Inman reported a property that was the site of one of the infamous Jeffrey Dahmer murders was picked up by a buyer for $100,000 less than comparable properties in the area.
Be upfront with your seller about their options and ensure they understand their obligations about disclosures in your state…
The Obligation to Disclose
Whether you need to disclose a stigmatized property differs from state to state. For example, in Texas, there’s no requirement to disclose a death, whether it be natural causes or a violent crime. But in California, all deaths that have occurred in the past three years must be disclosed.
There are different reasons a home could be considered stigmatized. Sellers and real estate professionals need to determine what must be disclosed and ensure all state regulations are followed. Otherwise, you might get the sale — but it may cause a lawsuit when the new owners find out the property is stigmatized, and they’re feeling duped.
Consider this: is the stigmatization likely to materially influence a buyer’s decision to purchase the property? If the buyer is informed about the stigmatization, would they have negotiated a lower price because the property is deemed to be worth less? If the answer is yes, you should strongly consider disclosing the stigmatization.
Check Your Insurance
Ensure you have adequate errors and omissions insurance to protect you against lawsuits. This will give you peace of mind that if something does go wrong, you will be covered.
CRES offers real estate E&O insurance packages that can be tailored specifically to suit your needs.As part of one of the largest insurance brokers in the world, we have access to more E&O options than anyone!
CRES E&O Insurance + ClaimPrevent® policies also give you access to expert real estate attorneys for pre-claim legal advice 7 days a week.
Contact the team at CRES at 800-880-2747 for a confidential discussion.