What is stigmatized property?

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As a buyer, you probably care more about your potential home’s future than its past. You might want to take the time to research the history of a property. You can avoid buying a property with a bad reputation or being unknowingly stigmatized by asking the seller’s agent.

What is considered a stigmatized property?

What is a stigmatized property? Per the National Association of Realtors, a stigmatized property is “a property that has been psychologically impacted by an event which occurred, or was suspected to have occurred, on the property.” However, despite the occurrence, the events attached to stigmatized properties have no physical impact on the home.

Although the definition might seem vague, that is what can happen with stigmatized properties. These houses can be in great condition before and after the event but their poor reputation can make it difficult for potential buyers to buy. It all comes down to the perception of the house after an event.

This could indicate that the previous owners were involved in criminal activities, the house was home to a murder or that the home is prone to paranormal activity. Ultimately, if you are a potential buyer and you can get over the stigma, a stigmatized property can often be a good deal, especially for first-time homebuyers or others who need a budget-friendly house. Before you make the leap, there are some things you should consider.

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Types of stigmatized properties

The stigma attached to a house is often as unique as its owner. People view stigmas in different ways. While a haunted house may not be a problem for everyone, a history of criminal activity could lead to undesirable people visiting the property. Your tolerance for possible issues and your willingness to accept the stigmatization of your property search are key factors.

Paranormal activity or hauntings stigma

Some people may be scared of strange noises, furniture movement, or temperature fluctuations. Others might view this as an advantage. Paranormal activity is not considered “material fact” by real estate agents, so this stigma does not often show up in traditional real estate disclosures. To find out if haunted activity has been experienced in your home, you will need to contact the agent of the previous owners.

Public criminal activity stigma

It doesn’t matter if the home was associated with drug dealing, prostitution, or any other illegal activity. The chances are that public perceptions of the property were affected by these criminal activities. A criminally stigmatized property could be a great deal, but it could also have serious drawbacks. There is also the possibility that neighbors may still perceive the house as being a place for criminal activity, even though the property has been transferred to new owners. Location in a neighborhood with a high crime rate is one of the factors that can make your home insurance more expensive.

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Death stigma

A natural death in a house is unlikely to cause a stigma. However, it could be a case where the body has been undiscovered for long periods of time. If the death was suicide or murder, however, the house can become a stigmatized asset. A death stigma might not be an issue if you’re a potential buyer and you have used a stigmatized property search as a way to find a great deal.

Debt stigma

Regular visits by aggressive collectors can leave the house with a bad reputation if the previous owners had high amounts of debt. Here are two things to consider as a potential buyer. You will need to inform all collectors that you are aware of the sale. You might also want to check on the outstanding property taxes of the previous owners. If they move without paying what they owed, you could be on the hook to the IRS for back taxes.

Sexual offender stigma

Sex offenders stigma can spread throughout an area. This means that the sex offender doesn’t necessarily have to be the original owner in order to stigmatize the house. One sex offender could live on the same block and create a stigma. You can put the address of your potential home into the National Sex Offender Registry to find out if there are any sex offenders living nearby.

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This list will give you an overview of the most common stigmatized properties, but other stigmas can affect a home’s resale price. Ask the past owners or the agent who sold the home about the history. You can also search the internet to find any red flags.

Things to consider when you deal with stigmatized properties

Stigmatized properties go beyond just reputation. How you handle the stigmatization during your home sale or purchase can be affected by state laws and best practices in real estate.

State disclosures for stigmatized property

Real estate agents do not have to disclose the property’s stigma. Because disclosure laws vary across the country, this is not a common practice. Although some federal laws are applicable, such as the requirement to disclose lead paint, each state has its own disclosure laws. Here are some of the most notable laws regarding stigmatized property in each state:

  • California: Unlike most states, California law requires that every death that occurred in the last three years — including natural deaths — be disclosed to a potential buyer.
  • Illinois: In this state, real estate professionals are legally required to disclose if the house was used to produce methamphetamine.
  • Alaska: In addition to disclosing any murders or suicides on the property in the last three years, Alaska state law also requires the disclosure of human burial sites.
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Stigmatized property is not for sale

Although a real agent may not immediately disclose information about a property with a stigma, you can still ask the agent directly if it is. Most agents will be honest to avoid a lawsuit. Most agents will answer honestly to avoid a lawsuit. While some stigmas, such as death and debt, fade over time, others like paranormal activity or sex offenders may still be an issue when the time comes to sell the house.

Pro-buying a stigmatized asset
Because of the stigma, you might be able to get a better deal with the previous owners.

The Con of Buying a Stigmatized Property
The stigmatization of your home might be a problem. You might be visited by debt collectors or those looking for illegal drugs. It may be more difficult to sell the house.

Selling stigmatized property

What happens if you have a stigmatized home and want to make a new start? It is important to discuss the stigma with your agent. This can be a potential obstacle that they can help you overcome. Do everything you can to attract a buyer. For example, if you have persistent debt collectors you might consider giving them your new address instead of the property that you are selling.

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Pro-buying a stigmatized asset
People might be attracted to certain stigmas if they are looking for a bargain or an added value, such as ghost hunters searching for haunted houses.

The Con of Buying a Stigmatized Property
Because of stigma, you may have to sell your property for less than the market value.