The Stigmatized House and the Duty to Disclose

Posted by: Joseph Ferrara on April 17th, 2009

If a client asks you to list their house but tells you it was the scene of a gruesome murder or a suicide, or the house is haunted, are you required to disclose this information to prospective buyers? The short answer is maybe.

Material Facts

Most states have disclosure laws pertaining to property condition and latent defects. The legal standard requires a seller to disclose “material facts” known to the seller that may influence a buyer’s decision. Common examples are a history of termite infestation or major damage from natural events (floods). But when it comes to property that may have been the scene of a murder, suicide or even an AIDS related death, states are divided on the issue of disclosure. Courts have given no clear guidance either.

These psychologically impacted properties, defined as “stigmatized” by the National Association of Realtors, are harder to sell, if the particular fact or suspicion is disclosed, according to James E. Larsen, Ph.D. and Joseph W. Coleman, business professors at Wright State University.

Stigmatized Effect on House Sales

Larsen and Coleman did a study of more than 100 psychologically impacted houses. They found that they take 45 percent longer than comparable homes to sell, and price at an average of about 3 percent less. It is not surprising that many buyers will not buy a house where a gruesome crime or suicide has been committed.

At least 21 states have enacted laws, known as stigma disclosure statutes, concerning the (non)disclosure of psychological facts. In those states that have not enacted these statutes, there are no hard and fast rules about disclosing property stigmas. The disclosure laws vary from state to state. From the ones I have read, most do not require disclosure of defined “stigmas”, except for murders. California and a handful of other states require the disclosure of recent murder scene houses.

Casper Houses

Granted, murder is a known “fact”. But what about the case of a haunted house? Surely, proving the “fact” of a haunted house is impossible and disclosure therefore unnecessary.

Well, there was a haunted house case. And the buyer won!

The case is Stambovsky v. Ackley (169 A.D.2d 254, 572 N.Y.S.2d 72). It was decided in 1991 by the New York Appellate Court.

Mr. Stambovsky, to his horror, discovered that the house he just bought in Nyack had undisclosed tenants. Unlike some tenants who just act like poltergeists, they were. He discovered the seller and her family had also seen them over the last nine years. In fact, Seller had publicized the ‘hauntings” to Readers Digest and the local media. The problem was that Mr. Stambovsky was not a “local” privy to this information (and probably didn’t have a local buyer’s broker). And the seller’s broker did not disclose it. The buyer sued to rescind the contract and the Court, “moved by the spirit of equity”, cast out the contract and ruled that Mr. Stambovsky’s down payment should be made to reappear in his bank account.

Now, before brokers add “Is the house haunted?” to their listing questionnaire, note that this case is the exception and not the rule. The Court stated that a real estate broker in New York is under no legal duty to disclose to a potential buyer the “phantasmal reputation” of a house. Any buyer who sues for fraudulent misrepresentation in such a case would not have a “ghost of a chance” of winning, said the Court.

Since the seller had publicly promoted the hauntings, she was stopped to deny the “fact” and equitable principles of law demanded she refund the buyer’s down payment for her concealment.

Home Valuation

In a case of stigmatized house, who ya gonna call for an accurate valuation? Well, you can call Randall Bell of Bell Anderson & Sanders of Laguna Beach, CA, an appraiser who specializes in diminution-in-value cases and stigmatized properties. Mr. Bell, affectionately known as the “Master of Disaster”, is often consulted on the appraisal of stigmatized homes, including Nicole Brown Simpson’s condominium after her murder.

Here are some tips if you face the stigmatized house question:

  1. First determine if the incident is based on fact or rumor.
  2. Get a lawyer’s opinion (and one from your local association). Get it in writing. Get a copy of the state disclosure law and stick it in the file
  3. If you are required by law to disclose, do it up front. Depending on the circumstances, it may be wise to disclose, even if you are not required to do so. (Lawsuits & lis pendens are too easily filed) Consult with your client. You may decide to pass on the listing.
  4. Be prepared to adjust the price. When the homeowner questions you, hand over a copy of the law. Get an appraisal from an experienced professional.
  5. Calm the fears of the buyer, explain any remodeling or the time lapse since the event. And emphasize the to die for views.

Unfortunately, I have had experience selling a stigmatized home. Definitely challenging.

Do you know what the disclosure law is in your state?



One Response on “The Stigmatized House and the Duty to Disclose”

Portland Real Estate

Thats really interesting. I had never heard that before. I wonder how many cases there have been like this that you just never hear about.

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