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Stigmatized Property: The Pros And Cons For Buyers

5-Minute Read
Published on June 26, 2023
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Uncovering hidden gems in the real estate market can be a boon to your home buying journey, especially when competition and prices run high. One area of the market holding such opportunities is stigmatized property. These unique properties can give buyers pause due to past events unrelated to their underlying value. As a result, it's essential to recognize that stigmatized properties aren't deficient or unmarketable, although they may be for sale because of unfortunate circumstances. This guide will explore the types of stigmatized properties you may encounter, the pros and cons of buying them, and essential factors to consider during the purchasing process.

What Is A Stigmatized Property?

A stigmatized property carries a negative connotation due to past events or circumstances that aren’t related to the physical condition of the property. Most states don’t require a seller to disclose a stigmatizing event, like a crime. Check your state’s rules to help prepare any questions you may need to ask during the home buying process.

A property becomes stigmatized when an undesirable event occurs. Potential buyers view these properties unfavorably due to various circumstances. For example, if a murder or violent crime occurs on the property, buyers may shy away, seeking a property without a troubled past.

However, stigmatized properties aren’t necessarily structurally or physically deficient because unfortunate circumstances don’t equate to property damage. Also, laws requiring sellers to disclose stigmas, such as criminal activity, can vary by state. For instance, Texas law states that sellers must disclose if a death has occurred on the property. Therefore, it's best to familiarize yourself with local laws when buying stigmatized properties. Likewise, sellers can protect themselves from legal ramifications by disclosing all stigma-related information up front.

State-By-State Laws For Stigmatized Properties

Currently, Alaska and California require sellers to disclose stigmatizing information, such as homicide or suicide. Every other state allows sellers to decide what to disclose and puts the onus on buyers to discover this information on their own. As a result, it’s best to familiarize yourself with local stigmatized property laws and talk with your real estate agent about your concerns.

Types Of Stigmatized Properties

Stigma is a factor that affects property value. Here are some common stigmas buyers may encounter:

Debt Stigma

When a homeowner loses their house because of financial trouble, the next owner might experience implications, such as communications from creditors looking for the original debtor. Likewise, back taxes and missed mortgage payments can fall into the new owner's lap. As a result, thorough research is crucial to avoiding a stigmatized home's financial legacy.

On the other hand, abandoned or foreclosed-upon homes can cost drastically less than other homes in the neighborhood. However, years of neglect can also necessitate expensive repairs and renovations (yet another reason to do your homework before buying a house).

Public Criminal Activity Stigma

Violent crimes can damage a property's reputation and value. These unfortunate tragedies make for challenging home sale situations. In some cases, these homes can raise concerns about property damage, undue public attention, or violating the space where a person’s life may have ended.

However, these homes typically receive extra love and care from real estate agents and owners invested in selling them. As a result, these homes are usually in excellent condition and frequently receive renovations that completely change the home, making them unrecognizable from before.

Sex Offender Stigma

A sex offender's home can create a stigma on a property or a neighborhood because buyers prefer not to live near someone with that type of criminal history. You can work with your real estate agent to flag these properties and check the National Sex Offender Registry to see if your house or neighborhood is near such a home. This stigma differs from others because it affects the properties surrounding the home instead of the home itself.

Death Stigma

The death stigma comes from circumstances where the previous inhabitant died. Unlike the crime stigma, these deaths result from natural causes, such as a heart attack or someone with a terminal illness choosing to spend their final days in their house. This stigma can leave buyers with the sense of not wanting to intrude upon a place significantly personal to the previous owner.

Haunted Or Paranormal Activity Stigma

A home known for paranormal activity can be challenging to sell because some buyers believe in the reality of angry spirits or the trapped souls of old inhabitants. For example, strange noises at odd hours, temperature fluctuations, objects seeming to move independently, or a ghost's appearance can become bothersome and affect your well-being. Similarly, homes with a haunted history or eerie atmosphere may pose challenges to buyers and sellers.

However, it's best to remember that reports of hauntings are subjective and rational explanations can dispel fears of ghosts. For example, faulty insulation can cause cold drafts, and old plumbing can cause unsettling noises.

Famous Home Stigma

Not every show or movie featuring a signature location uses a set: the houses you see are sometimes real. After production ends, these homes go on the market. For example, the utterly recognizable home from "Full House" is a privately owned residence. While living in such a house can be charming, it can also attract unwanted attention from fans, loiterers and neighbors.

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Pros And Cons Of Buying Stigmatized Property

Buying stigmatized property has benefits and drawbacks relating to price and the implications of owning the home:

Pros

As implied above, buyers can receive specific advantages from stigmatized property, such as:

  • Potential for lower prices
  • Opportunity to renovate the home
  • Opportunity to buy a freshly remodeled home for a bargain price
  • Less competition from other buyers

Cons

However, stigmatized properties also have the following disadvantages:

  • Difficulty reselling the property when you move
  • Psychological effects on owners
  • Visits from creditors for past debts, fans of past TV shows, or spectators

Buying Stigmatized Property

When buying a stigmatized property, it's crucial to consider multiple factors to get the best deal on a house that suits your preferences. First, assess the resale value. Stigmatized properties often have lower demand, which can affect their resale value. Consider the potential challenges you may face when selling the property in the future. If the stigma is severe, finding buyers willing to pay the desired price might be challenging. Adjust your expectations accordingly when negotiating the purchase price.

Next, consult with experts for legal concerns. For instance, a real estate attorney can provide sufficient knowledge about stigmatized properties. They can guide you through your jurisdiction's legal obligations and disclosure requirements. As a result, you can obtain the full story about the property in question and receive disclosures if state laws require them.

Then, you can negotiate a price with all the information at your disposal. For example, the seller may be motivated to sell at a lower price due to the challenges associated with the stigma. However, it's best to be reasonable and respectful. This way, your offer will reflect the property's value and allow you to build equity in a home you can sell if and when you decide to move.

If you want to purchase a stigmatized property, your real estate agent can research these homes in your area to see what’s for sale. Because these homes usually aren’t listed on the multiple listing service (MLS), you’ll need to make personal connections with the sellers to submit offers on stigmatized properties. So, working with a professional is vital for finding and buying off-market property.

The Bottom Line: Don't Let Stigmas Stop You

Buying a stigmatized property can present both pros and cons for potential buyers. On the negative side, you may have difficulty reselling the property in the future and experience undesired attention related to the stigma. However, the price discount, home remodeling opportunities, and thinner competition can help you purchase a beautiful home at an excellent price. In addition, stigmas can wear off as time goes on and ownership changes hands. So, if you're in the market for a stigmatized home, apply for a loan today.

 

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Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.