Deborah is a licensed Real Estate Broker. She has a Post Master's Certificate in college teaching with all but the dissertation of her doctorate in philosophy complete.
If you have ever thought about buying or renting a home and wondered about its history, consider the possibility that it could be a stigmatized home. Stigmatized property is a dwelling, a place of occupancy or residence, shunned for the occurrence of tragedy that weakens its market potential.
Real property is defined as building and land. There are no absolute standards for what potential buyers think is desirable real property. Whereas buyers are concerned with affordability, resale value, location and condition, architectural style, interior design and purpose, sellers are more concerned with market value, profit and price. When a property is stigmatized, it is neither desirable nor profitable regardless of style, location or condition. It may be affordable, but who wants it?
Violence is a product of human behavior. It is as much a part of human nature as life itself. When tragedy happens, we never think about real property and how value is affected. The impact can be astronomical. Whether a result of paranormal activity or death as a consequence of murder, a buyer is less likely to buy stigmatized property. The stigmas identified with property ending in illness, murder, trauma and death are vast and inclusive of suicide, HIV and AIDS, drug activity, criminal mischief, cult activity, kidnapping, pedophilia and psychiatric behavior. Most notable are cases involving mass murder, serial murder, and domestic violence. Shunned by most buyers and vacated by many sellers, stigmatized property presents both challenges and risks that often result in abandoned or demolished buildings, below market values, extended market time, and risk from potential liability.
Stigmatized property may or may not garner media attention, police involvement or a request for the coroner. Most events reported on the front page of the national news are less private and more common. When knowledge of stigmatized property is less common, caveat emptor - let the buyer beware. In other words, let the buyer exercise due diligence, discover his woes and get the property inspected. Many states require the seller to provide the buyer a disclosure statement usually available before an offer is made. The statement may include facts not easily observed in a visual inspection. And while it is the seller's duty to avoid misrepresentation by omission, a failure to reveal known material facts, important facts that a reasonable person would not have known to affect price or the decision to purchase, it is the seller's responsibility to disclose what is known but not obvious to the trained eye. The seller is required by law to disclose any pertinent facts about property stigmatized by murder, phenomena, suicide or criminal activity that may prohibit the buyer from making informed decisions about the purchase of stigmatized property. And while disclosure requirements for stigmatized property vary from state to state with few exceptions, a seller may not disclose the presence of an occupant with HIV or AIDS, a protected class of the 1988 Fair Housing Amendment Act.
Some of the most heinous crimes to stigmatize real property have been the subject of many books and documentaries. One of the most notorious events to occur, a subject of books and film, happened at 601-603 W. 63rd St., the World's Fair Hotel in Chicago, near the World's Columbian Exposition of 1893. Fairgoers traveled great distances to attend the fair. And while some checked into the hotel, a few of them never checked out. The owner was con artist and serial killer, H. H. Holmes. Born Herman Webster Mudgett, Holmes had a medical degree and many aliases, including Dr. Henry Howard Holmes. Dubbed the 'Murder Castle,' Holmes constructed his 3-story hotel with elaborate secret passages and torture chambers rigged with gas lines, blowtorches and lynching devices used to murder unsuspecting victims lured in as employees, lovers, and guests. Some victims were dismembered and incinerated on the premises. Holmes' was arrested and imprisoned. An arsonist destroyed the building by fire in 1895. Holmes was executed by hanging a year later at the age of 34.
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Let's look at another example of stigmatized property. Have you ever witnessed a crime scene on the evening news? In the aftermath of what seemed like a harrowing event, the reporter walks around, careful to avoid the crime scene tape as he is cautious to select his next interview. The lights are on but no one is home. The house is draped with yellow ribbon, and the victim lies still in a cotton white cloth nearby. In this case, you have witnessed the crime scene of a stigmatized home. One of the most sensational and notorious events to occur happened in 1994 on the premises of a property located 875 S. Bundy Drive in Brentwood, Los Angeles, California. The murder of Ron Goldman and Nicole Brown Simpson at her home on Bundy Drive shocked the world, gripped the nation and horrified the neighbors. For months, the community suffered through media attention and public scrutiny while others remained gripped in fear. The Brown family wanted the condo sold. Shortly after the murders, following extensive cleaning and remodeling, the condo finally sold two years later for $200,000 less than the purchase price Nicole Brown Simpson paid. After more extensive remodeling and a change of address, the condo sold for around $1.7 million in 2006. See what a difference an address change can make?
You might question whether stigmatized property can be desirable, or marketable, and when is it best destroyed? There are no absolute standards for what potential buyers think is desirable real property. The sale of Bundy Drive proves this. Stigmatized property regarded as less desirable to most buyers may still be potentially desirable. While they tend to be less desirable, there are ways to sell them and reasons for why they're destroyed.
The value of real property is based on personal opinion and fair market value, the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. Whereas, market value is what a seller may expect or ask for real property. Value is best determined by comparing the appraised property to similar properties currently for sale (market value) and recently sold (fair market value) within a limited mile radius of the appraised property. Perception and market timing are the challenges of selling stigmatized property. Whereas a remodel can improve how a property is perceived, marketability is a matter of timing. When marketing stigmatized property, consider the old adage 'time heals all wounds.'
Even stigmatized property has buyer potential. Exceptions occur when a stigma is so atrocious, people want to forget. When this happens, the stigmatized property is destroyed. Look at The World's Fair Hotel, for example. Dubbed the 'Murder Castle,' the World's Fair Hotel was a grisly scene of torture, mayhem and murder. The property stood to remind the public of a stigma they wanted to forget. Destroying stigmatized property is a way people heal from tragedy.
By now, you know that stigmatized property is real property stigmatized by tragedy and that most stigmas identified with real property are a result of murder, illness or death. And while there are no absolute standards for what potential buyers think is desirable real property, most stigmatized properties are neither desirable nor profitable regardless of style, location or condition. So, marketing and disclosure are its challenges.
Notoriety is a challenge of disclosure, not all stigmatized properties are notorious. What the seller knows is not always visible to the naked eye. So when the seller misrepresents disclosure by the omission of material facts, caveat emptor - let the buyer beware, since requirements for disclosure vary from state to state.
In the examination of stigmatized property, you learned the effects of human tragedy on property. While some people choose to sell stigmatized property, others choose to forget. In the case of the World's Fair Hotel, people chose to forget, and the property was secretly demolished, whereas others realized profit from the sale of Bundy Drive. From this lesson, you learned about value and that stigmatized property is marketable. The best way to market stigmatized property is to improve its market appeal, determine its fair market value, consider its market timing and disclose, disclose, disclose.
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Real Estate Exam Prep21 chapters | 212 lessons | 16 flashcard sets
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