What is stigmatized property?

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As a buyer, you probably care more about your potential home’s future than its past. That said, you might consider taking some time to look into a property’s past. Asking the seller’s agent and doing some internet research can save you from unwittingly buying a stigmatized property — or a house with such a notorious reputation that it could impact your property’s market value.

What is stigmatized property?

So what is stigmatized property? Per the National Association of Realtors, a stigmatized property is “a property that has been psychologically impacted by an event which occurred, or was suspected to have occurred, on the property.” However, despite the occurrence, the events attached to stigmatized properties have no physical impact on the home.

The definition may seem vague, but that can be the trouble with stigmatized property. Although these houses may be in good condition both before and following the event, their bad reputation can scare off many potential homebuyers. It comes down to how people perceive the house because of something that happened in it.

That could mean the previous owners were engaged in criminal activities, there was a murder in the house or the home has a history of paranormal activity. Ultimately, if you are a potential buyer and you can get over the stigma, a stigmatized property can often be a good deal, especially for first-time homebuyers or others who need a budget-friendly house. But there are a few things to consider before you take the plunge.

Stigmatized property types

Often, the stigma associated with a home will be as unique as the house itself. Additionally, people view stigmas differently. A haunted house might not bother everyone, but a history of criminal activities could mean the house gets some unsavory individuals dropping by. Ultimately, what you need to consider before your stigmatized property search depends on your tolerance for potential issues and the stigma at hand.

Haunted or paranormal activity stigma

While some people might be understandably scared off by unexplained noises, furniture movement or temperature fluctuations, others might see this as a perk. Because paranormal activity does not count as what real estate agents call “material fact,” this stigma often does not show up on traditional real estate disclosures. You will typically need to ask the previous owners via their agent and hope for transparency to find out if any haunted activity was experienced in the home.

Public criminal activity stigma

Whether the home was known for drug dealing, prostitution or some other illegal activity, the odds are high that the criminal activities impacted public perception of the property. As a result, criminally stigmatized property might be a good deal, but could come with some serious downsides. Beyond the perception from neighbors, there is a chance that people still visit the house to participate in said criminal activities, not realizing the property is under new ownership. Location in a neighborhood with a high crime rate is one of the factors that can make your home insurance more expensive.

Death stigma

In most cases, a natural death in a home is not enough to create a stigma — although a body going undiscovered for a long period of time could be another story. However, if the death was a murder or suicide, the house often becomes a stigmatized property. If you are a potential buyer who has considered a stigmatized property search to find a good deal, a death stigma may not bother you.

Debt stigma

If the previous owners had high debts, regular visits from aggressive collectors could leave the house with a stigma. As a potential buyer, there are two things you might consider here. First, you will probably need to be ready to firmly inform any collectors who show up that the previous owners have moved. Secondly, you might want to look into the previous owners’ outstanding property taxes. If they move without paying what they owed, you could be on the hook to the IRS for back taxes.

Sex offender stigma

A sex offender stigma can permeate an area, meaning that the sex offender does not necessarily need to be the previous owner to stigmatize the house. A sex offender living on the same block could be enough to create a stigma. You can put the address of your potential home into the National Sex Offender Registry to find out if there are any sex offenders living nearby.

While this list gives you a good overview of common types of stigmatized property, other stigmas could affect a home’s resale value. Before you buy any home, consider asking the previous owners and the real estate agent about its history. A quick internet search can also help turn up any potential red flags.

Considerations to make when dealing with stigmatized property

Stigmatized property goes beyond reputation alone. State laws and real estate best practices can affect how the stigma is handled during your home purchase or sale.

State disclosures for stigmatized property

A real estate agent does not necessarily have to tell you about a property’s stigma. This is largely because disclosure laws are not entirely standardized across the country. While some federal laws apply — like a requirement to disclose lead paint — each state also has its own unique disclosure laws. When looking at stigmatized property laws by state, here are a few that stand out:

  • California: Unlike most states, California law requires that every death that occurred in the last three years — including natural deaths — be disclosed to a potential buyer.
  • Illinois: In this state, real estate professionals are legally required to disclose if the house was used to produce methamphetamine.
  • Alaska: In addition to disclosing any murders or suicides on the property in the last three years, Alaska state law also requires the disclosure of human burial sites.

Buying stigmatized property

While a real estate agent will likely not volunteer information about a stigma right away, you can ask outright if a house is a stigmatized property. To avoid a lawsuit, most agents will answer honestly. The main things to consider are: will the stigma bother you and to what extent, and will the stigma make it harder for you to sell the house when the time comes? Some stigmas — like death and debt stigmas — fade over the years, but others — like sex offenders or paranormal activity — may still be an issue when you are ready to put the house on the market.

Pro of buying a stigmatized property:
You might get a better deal from the previous owners because of the stigma.

Con of buying a stigmatized property:
You might need to deal with the stigma’s fallout. For example, debt collectors or people seeking illegal drugs may frequent your home for a while. You may also have a harder time selling the house.

Selling stigmatized property

What if you already own a stigmatized property and you want to get a fresh start? For starters, it helps to be upfront with your real estate agent about the stigma. They can help you position the house to sell in spite of this potential hurdle. Then, do what you can to hook a potential buyer. If you have persistent debt collectors, for example, consider giving them your new address as a contact instead of the property you want to sell.

Pro of buying a stigmatized property:
Some stigmas might actually attract people looking for a good deal or a unique value-add, like ghost hunters looking for a haunted house.

Con of buying a stigmatized property:
You may need to sell for less than market value because of the stigma.

Written by
Kacie Goff
Personal Finance Contributor
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.
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