Click Here REALTOR® Magazine Online: The real estate professional's business support tool.
OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF REALTORS®
Topic Areas Daily News / Blogs / Statistics
Prospecting / Customer Handouts
Court Cases / Ethics Q&A
Buyer's Guides / New Tools
Architecture / Home Trends
Sales Meetings / Profiles



This article was published on: 12/01/2003

LAW: Stigmatized Property

BY RAINE ZYGMUNT

Haunted sales

My clients were easy to work with. I’d helped them sell their first house, and now we were looking for a larger one for their growing family. One Sunday I took them to a vacant colonial on a quiet road. They liked it, but the next day the wife called me and, in a voice as reedy as a child’s, asked, “You know, about 10 years ago when we first moved here, wasn’t there something about a house on that road…? That’s not the one, is it?”

No, I assured her, that wasn’t the house where the murders had occurred, and if it had been that house, I certainly would’ve told them.

But if it had been that house, should I have told them? And what would I have risked if I did? Unfortunately, there’s no easy answer.

Stigmatized properties are homes where a real or rumored event occurred that didn’t physically affect the property but could adversely impact its desirability. Events and circumstances that might have a psychological impact include murder, suicide, criminal activity, occupants infected with human immunodeficiency virus, and even a reputed poltergeist.

Most states have laws that mandate disclosing known physical defects in a property. As of 2001, 31 states had laws listing events or circumstances not considered material facts, according to the NATIONAL ASSOCIATON OF REALTORS®’ Legal Affairs department. In many cases, salespeople and brokers are exempt from disclosing these stigmas in real estate transactions. What those laws consider “psychological”—as opposed to material facts that need to be disclosed—varies considerably from state to state.

The statute in my home state of Connecticut says that neither property owners nor their agent can be held liable for failure to disclose to a property’s prospective buyer or lessee that such property is stigmatized. Agents are directed to suggest that buyers with any questions about potential stigmas refer them directly to the owner in writing.

Practitioners who work in states that don’t offer specific legal guidelines face a tougher dilemma. There’s very little case law dealing with disclosing information on stigmatized properties.

Disclosure decisions are even more difficult in cases where a sales associate is unable to verify the facts of a reported problem or even determine whether it occurred. And inquiries regarding HIV and other illnesses connected with the home must be handled with extreme caution. Persons with HIV are protected as handicapped under federal fair housing law. Rather than putting yourself in a position in which you could be showing a preference for or against a protected class, you should inform buyers that they’ll have to make any inquiries on this topic on their own. This way you remove yourself from the equation.

Even if your state has a statute that exempts you from having to disclose stigmatized property, these laws usually don’t prohibit disclosure.

And such a statute doesn’t allay the uncomfortable feeling that you’re “holding out” on your buyer clients. If you’re like most of the real estate salespeople I know, you’re torn between the fear of losing your buyer clients’ trust and that of facing a lawsuit from owners who don’t want the stigma disclosed.

The list of such dilemmas in this area is seemingly endless: As a seller’s agent, telling buyers about a property’s stigma without the sellers’ permission could be a breach of fiduciary duty. But if the buyers you’re working with as customers ask you directly about a property stigma, you run the liability risk of misrepresentation if you fail to tell the truth about what you know.

As a buyer’s representative, you’d probably have a fiduciary obligation to inform your clients of anything you know about a property even if such disclosure is exempted by state law. So what to do?

Routes through the maze
If you list or show a stigmatized property, NAR’s legal department suggests you:

  • Check with your real estate commission or your legal counsel to determine your state’s laws on disclosure. Some states have separate laws addressing disclosures relating to stigmatized properties. In other cases, guidelines are part of the state’s seller disclosure laws.
  • Where there’s no statutory guidance, try to determine whether the stigma is based on rumor or fact.
  • If it’s a fact, consider how material it is to the transaction—how sensational was the event; how long ago did the event occur; would it be likely to have an impact on a buyer or affect the purchase price?
  • If you have the listing, discuss disclosure with the owner. If the owner refuses to allow you to disclose, evaluate whether you want to retain the listing.
  • If you represent buyers, disclose any known facts about the property unless there’s a prohibition on such a disclosure in your state. Even where disclosure isn’t mandatory, it’s often advisable.

The house where the murders took place on that quiet road in Connecticut was eventually put up for sale and went without offers in a brisk market until the listing expired. The new listing broker advised the owner to divulge the property’s history in writing. In time, a family moved in, giving the house a new chance to be nothing more than a home.

Zygmunt, a Connecticut real estate licensee, is the author of the mystery novel “The She-Wood,” a story about a real estate salesperson who must sell a stigmatized property. She now works as a referral agent for William Raveis National Relocation Management. You can reach her at RaineZ@TheShe-Wood.com.

ONLINE EXCLUSIVE

For more on disclosure, order the REALTOR VIP® publication “Property Disclosures Pocket Guide” (Item #126-343-RM) by calling 800/874-6500.

QUOTE

Rumor doth double, like the voice and echo, the numbers of the feared.
—William Shakespeare



Launch a printer-friendly version of this page

E-mail this page to a friend

Give us feedback