Buying or selling a stigmatized property

Former grow-ops, a home in which a death has occurred, an apartment on the 13^th 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 13^th floor
• a house with a reputation of being haunted

What can a seller do when a property is stigmatized?

The fact is that the law in Alberta is slightly grey on the subject of disclosing stigmas. In general, a seller is not required to disclose a stigma in a home. However, a seller is usually advised to disclose any stigma, even though the law doesn’t require doing so. Eventually, chances are probable that a buyer will find out about a home’s past via the neighbors, etc. The decision to disclose a stigma may also depend on the kind of stigma. If a home was, for example, a former meth lab or grow-op, a buyer may out find out after moving in, and sue in court for deceit.

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.

A stigma may have a larger effect, for example, in an area where a particular cultural group is more prevalent. Also, a stigma can be the result of one particular event such as a murder in a home. The effect of this event is likely greater when the murder is still broadcasted all over the news. Or another example is a former grow-op. The effect of the stigma is greater when the home is listed within months after remediation. But once the property has been lived in for several years, and no (health) issues have arisen, the effect may subside. Sometimes, only time may tell if the stigma recedes over the years and affects its value for that reason.

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

When listing a property on the MLS, a seller can disclose a stigma through the remarks. The MLS offers two different kinds of remarks; public and private. Most realtors choose to disclose information via private remarks, those that can only be read by realtors. This way, a buying realtor can show the property and inform the buyer of the disclosed remark.

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:

You are required by law to disclose material latent defects. These are known defects in the property that are not discoverable through a reasonable inspection and that may make the property dangerous or potentially dangerous to occupants or unfit for habitation. You may also be required to disclose defects that would be expensive to fix, government and local authority notices and lack of development permits.

(a) Are you aware of material latent defects in the property?

(b) Do you know of any defects that would be expensive to fix?

(c) Have you received any government or local authority notices?

(d) Do you know of any lack of permits for any development on the property?

If yes to any of the above, complete the Defect Disclosure Instruction Schedule. 

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.

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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.