Do YOU Disclose Stigmatized Properties?

What do murder, suicide, paranormal activity, sexual deviation, cult activity, famous adulteries and divorces, misfortune, violent crimes, and AIDS (see note), have in common?  

All have the potential to ruin a real estate deal because of the public perception associated with being a stigmatized property. 

According to the National Association of Realtors®, stigmatized properties "are homes where a real or rumored event occurred that didn't physically affect the property but could adversely impact its desirability". 

Since Caveat Emptor (let the buyer beware) has been the generally accepted property law doctrine for buying pre-existing homes in the U.S. (exceptions include seller hiding material defects or making misrepresentations), does the seller have to disclose the non-material stigma?  Is the agent/broker bound to disclose this information to prospective buyers?  The answer to both is murky clear...Maybe, based on the state you live in. 

Currently, the majority of states have passed laws affecting stigmatized property disclosure but consensus has not been realized.  For instance, in Georgia, no disclosure is required unless the buyer (or buyers' agent) specifically asks for the information (Georgia Code 44-1-16).  Some states require phenomena get reported, others only require that murder be disclosed, some states call for other variations, while still others have no provisions at all.  The rules are often confusing with factors such as community ethics, consumer perception, and religious beliefs having an impact.  When in doubt, and authorized, it's usually best to disclose the information, even at the risk of losing the sale.         

If you decide to list or show a stigmatized property, here are a few general guidelines to follow:

1. Check with your real estate commission to determine your state's disclosure laws
2. When statutory guidance does not exist, separate fact from fiction, and determine the impact disclosure will have on the buyer, seller, and price of the property
3. Consider not taking or retaining a listing when the seller refuses to disclose stigmatized information and/or prohibits you from discussing it
4. Always maintain trust with your buyers by disclosing facts.  In instances where disclosure is not mandatory or prohibited, it's usually wise to provide the information anyway.

It's widely reported that stigmatized properties are often unsellable or sell for a fraction of their listed price, even several years after the incident and subsequent media attention.  While this is often true for highly publicized stigmatized listings, most properties only see a short-term reduction in purchase price.  According to a 2000 Wright State University study performed on over 100 stigmatized homes, the properties sold for only 3% less than comparable listings but stayed on the market 45% longer.  As the old adage goes, "time does heal all wounds".  

Famous stigmatized properties include the home sensationalized in the movie The Amityville Horror (112 Ocean Ave), the Lalaurie Mansion in New Orleans (recently owned by actor Nicholas Cage), the Ackley house in Nyack NY, the LA property where Nicole Brown Simpson and Ronald Goldman were murdered, The Ramsey house (JonBenet), the CA compound where 39 Heaven's Gate cult members committed suicide, and even disgraced financier Bernie Madoff's houses.  

While most stigmatized homes are less appealing to potential buyers, a few do benefit from the notoriety.  For instance, The home of Heidi Fleiss (Hollywood Madame) sold for its asking price (appraised for more) and the Lizzie Borden residence in MA is now a successful Bed & Breakfast (with Lizzie Borden gift shop) that publicizes and allows guests to sleep in the rooms where the axe murders took place (Note: Lizzie was acquitted).  

The takeaway...

1. As a buyer, always ask whether a property is stigmatized.  If it is, ask why
2. As a seller, disclose everything that affects buyer willingness to purchase the home or changes the amount they are willing to pay
3. As an agent, disclose everything you're allowed to.  Losing a potential sale is not worth losing your license over. 

Note: HIV patients are identified as disabled according to the Americans with Disabilities Act and are now protected from discrimination under the Federal Housing Act.  Disclosing a person has AIDS is breaking the law.