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The Stigmatized House and the Duty to Disclose

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. Continue reading this post


Posted by: Joseph Ferrara on April 17th, 2009 under Buying or Selling a Home, Home Values

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