Stigmatized property in real estate has long been a sticky situation as a point of confusion and frustration for REALTORS® and clients alike. The main reason for such confusion is that stigmatized property is not clearly defined and requires some digging to determine if a stigma exists. Let's think through some of the issues to help identify waypoints to guide your direction on this issue.
How is a property stigmatized?This question is the toughest of all because the stigma arises not from a physical defect or issue but from a perception of the public based on cultural, situational, religious, or media-based factors that do not immediately manifest themselves to the buyer. As a rule, a stigmatized property is a property the buyer or general public considers less desirable based on perception or belief that the demand for such a property is reduced, and therefore its value is diminished. Property stigmas can be things like a death in the home, typically violent or gruesome, drug or crime-related activities such as grow ops or gang clubhouses, or even things like proximity to graveyards, mental health facilities, or power wires. This list is just the tip of the iceberg, but it should have been enough for you to consider your position on buying one of these properties, thus illustrating my point about stigma.
Selling Stigmatized propertyIt is the practice of listing REALTORS® to try and appeal to the largest possible market to achieve the best exposure for the property, resulting in the best price for the seller. The listing of a stigmatized property could potentially decrease the demand for that property, and subsequently the purchase price. It's not true in every situation, as I once had buyers who dreamed of owning a haunted house and wanted me to keep my ears open for one! The task of selling a stigmatized property is daunting, to say the least, but as a wise man once said, "there is nothing wrong with any property that the right price and terms cannot fix," and a REALTOR® is skilled in putting the property in its best light regardless of the challenges.
Disclosure distressSo what about disclosing the stigma on a property? Is it mandatory by law? In a word, no. The law is silent in the disclosure of stigma so it is not technically mandatory for a seller to disclose stigma related to a property, however, best practice is to disclose known stigmas. The fact is that if the seller doesn't disclose, their neighbours will, and the buyer will learn after the fact that there was a murder in the home, or their new family home was a former meth lab. The perception in this scenario is that they were swindled by the seller, which will certainly invite some level of litigation in most cases claiming damages associated with the seller not disclosing the stigma. That is for the courts to decide, but no seller, REALTOR®, or brokerage wants to go through that if a simple disclosure could avoid the whole situation. In most cases, when the buyer learns of the stigma early in the process, they can decide to be ok with it or move on, but cannot claim they didn't know, which protects everyone. A REALTOR® with the help of their broker can help determine which things should be disclosed and how to manage the disclosures.
Removing the stigmaUnfortunately, not all stigmas can be removed. A home where a violent murder occurred may lose its offence over time, but the event is forever associated with that home in the neighbourhood. Similarly, a home that is considered haunted will live on in the imaginations of surrounding residents for possible generations. On the other hand, former marijuana grow operations may be professionally and publicly remediated, becoming more acceptable to most buyers, or a former gang house is completely renovated, and the neighbourhood goes through a revival of new families. As mentioned before, the stigma is related more to the public perception of a property than the property itself and can be reduced or eliminated over time in most cases.
Because the Stigmatized property is such a complex issue, sellers should discuss issues with their REALTOR® and work together to determine how best to disclose. REALTORS® working with buyers need to be sensitive to concerns their buyers may have, and be sure to disclose everything they learn about a property for the buyer's consideration.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: firstname.lastname@example.orgPhone: 403-209-3619