How stigmas affect home pricing
A local home in a nice neighborhood home was recently 'flipped'. The investor-owned home was purchased through foreclosure and was subsequently 'remodeled'. When the time came to list the home the investor received lots of interest and even several offers. Eventually, though every interested party declined to move forward and lost interest in the property. The reason? The neighbors would explain to each interested buyer the history of the house. Without going into great detail, the previous owner's family member was considered by most to be a scary guy. With a violent history, outward aggression, and multiple arrests the neighbors lived in fear of crossing paths with the man. The violent man's own family member was so scared he had multiple locks on his bedroom door and would only come out when the man left the house.
While the house showed well at first glance with no obvious signs of deferred maintenance, mold, the result of previous water leakage. In addition to replacing carpet and linoleum, cleaning air vents, bleaching the walls, and repainting, the homeowner was advised to list the house far below market value. His Realtor also told him to disclose the house’s history, warts and all.
Toxic mold is but one of many issues that can stigmatize a house, making it worth less than its neighbors. Other possible stigmas include homes that have been the setting of a suicide or murder, felony, accidental death, or even the suspected presence of ghosts. Other bizarre circumstances can also prejudice potential buyers, because stigmatized houses often represent psychological rather than physical prejudices. Consider the house featured in the movie Amityville Horror. It was a beautiful Victorian mansion, but who would be willing to pay for that property?
Stigmatized houses aren’t labeled as such in newspaper ads. Yellow police tape doesn’t distinguish them from their more innocent neighbors. So if you’re a buyer, one indication that a home is stigmatized is its low price.
If you wonder why you are getting a steal, ask the owner. In some cases, the price may be reduced simply because the seller wants a quick deal. If the issues are more complicated, however, the seller may be required to tell you only if asked, depending on disclosure laws in your state. For example, in California, full disclosure is required; sellers need to inform buyers of problems even if they’re not specifically asked. In Colorado, sellers must answer only direct inquiries.
State laws differ greatly on this issue because stigmas relate to real properties that reflect personal values and perceptions, matters difficult to legislate. Whether you are buying or selling, it will be worth your while to learn your state's laws for disclosure.