Former grow-ops, a home in which a death has occurred, an apartment on the 13th floor; many different stigmas can potentially affect the value of a home. But when is a seller required to disclose a stigma? And what can a buyer do to avoid buying a stigmatized property?
What is a stigmatized property?
A stigmatized property is one that may be avoided by buyers or at the least is considered less desirable by the public. Stigmas in real estate are often based on a public perception arising from a cultural or religious standpoint. A stigma is not considered a physical defect of a house.
A stigma often negatively affects the value of a property due to attracting fewer interested buyers. Every stigma has its own effect on a home, on its desirability and its value.
A few examples of stigmas in real estate are:
- a home in which a suicide or a murder occurred
- a property with a history of any crime relating to drugs, like marijuana grow-ops or meth labs
- the house with number 13 in its address or an apartment on the 13th floor
- a house with a reputation of being haunted
What can a seller do when a property is stigmatized?
If in doubt, consult with a real estate lawyer
In any case, lying is never allowed. So, a seller must answer truthfully to any questions a buyer asks about the property. Of course, a seller can always decline to answer any questions about the history of the property. Likely, though, that will raise a red flag for the buyer.
The value of a stigma
Selling a home with a stigma can affect its value. Obviously, how much a stigma will affect the value depends on many factors. Stigmas are, in essence, based on cultural and religious beliefs. This makes it difficult to determine the impact.
Chances are probable that a buyer will find out about a home’s past via the neighbors
Each specific buyer deals differently with learning of a death in a home. In Holland, for example, some people live in homes that were built in the year 1700. Chances are significantly higher that someone has died in a home that is more than 300 years old.
How to disclose a stigma
An experienced realtor understands the differences in the value of stigmas
Still, the best practice for a seller is to create a term in the purchase contract between the buyer and seller. The term must include a sentence such as ‘Buyer acknowledges that the home…’. With such a term, a seller is not necessarily released from getting sued. However, it makes it more difficult for a buyer to successfully sue a seller.
A realtor understands stigmas better
At some point, every realtor, whether as a buying or selling agent, runs into a stigmatized property. An experienced realtor understands the differences in the value of stigmas. That does not necessarily make it easier to price a stigmatized property correctly, though. General common sense should define the proper evaluation of a stigmatized property.
A realtor can take a stand
REIX is the organization that covers the liability insurance for the real estate industry. REIX always recommends realtors disclose anything that potentially can become an issue. Therefore, if a seller is not willing to disclose a stigma, a realtor can refuse to list the property. Should the ‘truth’ come out about the home, a buyer can sue the seller, and in the process of suing the seller, also sue the selling realtor.
If in doubt about disclosures
To disclose or not to disclose a stigma? If in doubt, consult with a real estate lawyer. Even though real estate agents must have general knowledge about disclosures, it still is the best practice to contact a real estate lawyer for a definitive answer.
Always remember that a buyer can, and often will, find out about any previous events in a home after s/he has moved in. A buyer who finds out something afterwards can start a legal suit if a seller held back on disclosing a significant event in a home.
While any judge may or may not side with the buyer, a legal suit does put a strain on both buyer and seller.
Buying a stigmatized property
Every buyer has his or her own beliefs regarding different stigmas. Religion and culture are only two factors that play a part. A murder or suicide in a home will affect a greater audience, perhaps, than a house numbered 13.
A buyer can do several things to try avoid the purchase of a home that might be stigmatized. None of these options give a 100% guarantee to not purchase such a home, though. But remember ‘Caveat Emptor’ (buyer beware) is applicable in Alberta.
- Inform your realtor ahead of time about your concerns. When a buyer indicates any concern, a realtor can do preliminary research and contact the selling agent ahead of time with questions.
- Have the seller’s realtor ask the questions directly to the buyer. A great way is to ask questions via an email. That way, answers are documented. If the answers are verbal, it is wise to document them.
- Ask the realtor to check the history of the home. Homes that are sold via the MLS allow realtors to retrieve previous listings.
- Knock on the neighbors’ doors. Talking to homeowners near a property is a very good way to find out more about the property’s history.
- ‘Google’ the property address. Although this may not be a 100% guarantee, many drug and crime related issues are published in the mainstream news.
- Alberta Health Services publishes health enforcement orders related to illegal drug operations, but for a limited time.
- Alberta Health Services registers any orders on title against homes used as grow-ops, for a limited time. This means that pulling historical title may not reveal any disclosures anymore. However, the Alberta Land Titles Office does gives the opportunity to still check if any ‘Notice of Health Hazard Registration’ was cancelled in the past.
- The website HouseCreep.com claims to be “The worldwide directory of stigmatized properties and house histories”.
- Lastly, if something feels ‘off’, a buyer can walk away from the property. For example, a seller giving vague answers to rather simple questions might just be a red flag for the buyer.
Disclosure of material latent defects are mandatory
A stigma should not be confused with a material latent defect. A material latent defect is considered a defect that is not easy to detect and can be costly to remediate. Known mold in a home or a basement flooding due to a crack in the basement affects the structure. But also a newly built garage without the proper permits in place is considered a material latent defect. By law, these types of defects must be disclosed by the seller.
The real estate listing contract in Alberta states the following:
An un-remedied former marijuana grow-op property must be disclosed. But, by law, a remediated grow-op does not need to be disclosed anymore. However, not disclosing the fact that the home was a former marijuana grow-op may result in a lawsuit against the seller. Therefore, the liability insurance of realtors (REIX) advises to disclose a former marijuana grow-op, former meth lab, etc.
Who we are
We are Tanja van de Kamp and Ariette van Pelt, working as a team, both buying and selling homes in Calgary. Calgary has been our home since 2004, and real estate our full-time profession since 2009. Tanja was a lawyer in The Netherlands for 12 years, and learned how to negotiate strategically, and to work in the best interests of her clients. Thanks to our honest and transparent approach to real estate and towards our clients, we have built our business.
Please note: The above is general information and not considered legal advice. We do our best to write informative articles about real estate in Calgary, Alberta. If you have any questions or concerns about our comments, please feel free to contact us or speak to your legal advisor.