Saturday, November 13, 2004

Murder, Mayhem, Hauntings - "Stigmatized Property"

The news is full of gruesome and shocking crimes, many of them committed in dwellings. These occurences can result in what the Real Estate industry calls "stigmatized property"-- a property that has potentially intangible blemishes that can affect perceived value by virtue of crimes, murders and/or natural deaths which occurred in the dwelling.

While it's easy to appreciate that the value of a home will be reduced if the roof leaks or the basement floods, the situation becomes more complex when the issue is psychological rather than physical.

Suppose a home is in excellent physical condition; but suppose as well that it's also been the site of a murder or a suicide. Is the home as valuable as a similar property where such events have not occurred?

Some prospective buyers would plainly be uncomfortable by such news with the result that either they would not bid on the property or they would reduce their offers.

The feelings of many buyers are entirely understandable, but it's also easy to see that sellers may be unfairly damaged, too.

If the home is the site of a suicide or murder,the individual who died was probably a friend or relative of the owners, and they doubtless feel enormous loss and perhaps wish to move. But under some state rules, when they offer their home for sale the owners must tell buyers of recent events at the home, thereby lowering its value.

The complicating factor is that a number of states have so-called "stigmatized housing" rules which say that owners and their brokers need not disclose the events at the home related to suicides, accidental deaths, natural deaths, ghosts, or felonies, or if the property is next-door to a sex offender. These rules are inconsistent so that the disclosure requirements in one state may be very different than another. Many states have no rules dealing with stigmatized homes, a legal gap which offers no guidance to buyers, sellers, or brokers.

The result is that what must be disclosed depends on where you live. A murder may have to be disclosed in one state, not disclosed in another, or disclosed today but not after several years.

But, it's not too surprising that state rules are often divided on this issue. Stigmas are related to personal values, preferences, and perceptions, matters that are almost impossible to legislate.

If you own a property which is or may be stigmatized, or if you are considering the purchase of such a property, make certain to speak with knowledgeable brokers/agents and/or attorneys in your state to see what disclosures, if any, are required

Read Part II - "Arizona Specific Laws"