What is a stigmatized property?

You know ‘that house.’ It’s the “haunted” house down the street that gives passers-by the creeps , the home where someone died or a crime occurred. It may sound like the beginnings of a horror movie, but rest assured that it’s not. All these properties have a common factor: they are considered stigmatized properties because of their reputation, earned or not.

There are several types of stigmatized properties

With a stigmatized property, the home has no physical defects or flaws that would affect its habitability. Instead, it is “psychologically impacted” by an event that turns people away for various reasons. For example, many find the idea of living in a home where someone has died unnerving.

A home can become stigmatized for a variety of reasons including, but not limited to:

• Debt stigma: A previous owner in debt moved from the home, and debtors still come to collect, harassing the new owners. This is especially prevalent if the methods of collection are illegal or aggressive.
• Criminal stigma: The home was used for criminal activity.
• Death stigma: A murder or suicide occurred in the home. In many states, these have to be disclosed to buyers.
• Phenomena stigma: The home is considered haunted or the location of supernatural or unexplained events to the local community.
• Public stigma: The home has a widely-known reputation from either a haunting, infamous past resident or even a famous home that attracts unwanted tourists.

Common examples for phenomena and public stigmas are the Amityville Horror house and the Breaking Bad home.

Laws regarding stigmatized properties

Depending on where you live, sellers and realtors may or may not be required to disclose deaths on the property. In California, realtors and sellers have to disclose a death in the home if it occurred in the past three years. Otherwise, the legal language is tricky regarding “psychologically impacted” homes.

When buying a home, buyers are urged to remember the principle of caveat emptor, or “let the buyer beware:” do your due diligence by researching the home to make an informed purchase. Buyers should ask sellers and realtors directly if there are any stigmas attached to the home. Even if a state doesn’t require a seller to disclose the stigma, their duty of honesty requires them to disclose when asked. If a buyer doesn’t ask, finds out later, and state law did not require disclosure, there is little they can do. However, if the seller misrepresented the home, the buyer can take legal action if they so choose.

Stigmatized properties can be a hidden gem

Because a stigmatized property can be challenging to sell, it can negatively affect the value of a home. Sellers may also find that the home remains on the market for much longer than it usually would otherwise, which can become a financial burden to them.

But don’t let that turn you away from stigmatized properties. The good news is that many buyers aren’t turned away by a property’s reputation and are looking for a good deal. Since these homes can remain on the market, they are treasures to buyers who can look past the home’s reputation, both purported and real.

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.