Don’t Be SPOOKED

Selling a stigmatized property can be a scary phenomenon.

In a real estate market like we’ve seen over the past 18 months, properties are selling as quickly as they appear on the market. Usually, that is.

But even the hottest seller’s market in history won’t erase a property’s past. Stigmatized properties present a unique challenge for real estate agents, lenders, and appraisers. The National Association of REALTORS® defines a stigmatized property as one that has been “psychologically impacted by an event which occurred or was suspected to have occurred.”

That’s a pretty broad, vague definition. In everyday terms, stigmatized properties are often considered haunted, cursed, or to have a sordid history. They are properties where there is no physical defect, but a property’s past could deter buyers.

Since the mid-1990s, Iowa law has required signed disclosures from both the agent and the seller to protect individuals involved in the purchase. Sellers are obligated to disclose material adverse facts about the property. But Iowa does not require nonmaterial facts to be disclosed.

Those nonmaterial facts can include past events that took place on the property, such as criminal activity, murder or suicide, paranormal phenomena, or a public stigma (such as the site of an infamous event). For some buyers, those facts would not be a deterrent. Others feel differently.

REALTOR® Liz Keller of Re/MAX Concepts says she never took the idea of haunted houses seriously. Until she owned one.

She had only been in the real estate business for a couple of years when she and her fiancé bought a property from a friend going through a divorce. “She needed to sell the home because of her personal situation, so we bought it with the intention of finishing the needed repairs and flipping it,” says Keller. “She had told me she thought there were some weird, unexplained things happening at the house. But we didn’t really believe in that sort of thing, so we weren’t too worried about it.”

During the renovation work, multiple contractors walked off the job and refused to return. Even Keller’s fiancé, who had always been extremely skeptical of haunted house claims, couldn’t explain the drafts of cold air and his dog’s reaction to the house.

“We finally finished the work and got the house on the market,” Keller says. “But we had other REALTORS® tell us they saw a man walking through the house when it was supposed to be empty.”

The home eventually sold, but that experience was enough to convince Keller that stigmatized properties really do exist. “Now, if I have a buyer who’s spooked by the possibility that something could have happened in a property, I tell them that if the house is more than 30 years old, it’s more than likely that at some point something bad happened in that house. That doesn’t mean it’s haunted, but you can’t ever be sure that nothing bad ever happened there.”

Because Iowa law doesn’t require sellers to disclose nonmaterial “defects” or facts, knowing how to market these properties can be a delicate business. Even homes not reputed to be haunted can be stigmatized to the degree that it dramatically affects their value.

The California home where the Manson murders occurred in the 1960s was eventually demolished, and the address was changed in order to overcome its past. The home where Nicole Brown Simpson was murdered also sold for less than its market value, and the address was changed to minimize the publicity.

Even so, a house’s history can be nearly impossible to overcome. According to an article in The Washington Post, it often takes seven years or more for a stigmatized home to regain its fair market value.

For some properties, the stigma associated can become a marketing tool—how long depends on the notoriety of the home.

In his book American Murder Houses, author Steve Lehto says these properties can become tourist attractions until eventually the associated events become “less personal and more historical.” Lizzie Borden’s house and the home made famous by Truman Capote’s book (and later the movie) In Cold Blood, however, both remained tourist attractions for decades.

Just a few miles east of Des Moines, the old Farrar High School building, last occupied in 2002, still stands. The building’s current owners purchased the property after it had sat vacant for several years. Their intention was to renovate it. But its reputation as “the most haunted building in Iowa” and the ongoing tales of unexplained sightings and sounds have turned the building into a tourist attraction instead.

According to the owners’ website, HauntingatFarrar.com, “Over the decades, employees and students reported hearing voices, slamming doors, and sightings of unnatural figures walking the halls.”

Since 2007, the building has been visited by internationally known psychics, the Discovery Channel, and Fox News, among others. Listed for sale again, the property can still be booked for overnight visits for those “brave enough to stay the night.”

While Iowa law may not require sellers or agents to disclose nonmaterial facts associated with a home, most experts advise taking a forthright approach to these stigmatized properties, whether that means full disclosure or an honest willingness to answer questions.

As Keller says, “Some buyers are really spooked by a house’s past. But for most, the stories won’t bother them at all.”