Stigmatized Properties in Real Estate. Advice for buying or selling stigmatized a property
Thursday Oct 29th, 2020
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A haunted house? 👻 A house that was the site of a gruesome murder, suicide or criminal activity? 🏡😱 All of these, and more, are examples of stigmatized properties in real estate.
If you're looking for advice on either buying or selling a stigmatized property, you may want to watch the video for tips. Timestamps below.
Thank you for watching!
Below are the clickable TIMESTAMP links for the video
00:15 - What is a stigmatized property?
1:04 - Are stigmas only related to the property itself?
1:44 - Does a seller have to disclose a stigmatized event to a buyer?
1:50 - Does the law in Ontario require sellers to disclose a stigma to a buyer?
2:07 - Advice for homeowners who are selling a stigmatized property in Ontario
2:31 - Do real estate agents representing sellers have to disclose a stigmatized event to buyers?
2:59 - What OREA (the Ontario Real Estate Association) and RECO (the Real Estate Council of Ontario) say about stigmatized events and their differing rules for realtors on this subject
4:01 - The perspective of a listing agent representing a seller client
4:51 - Advice for fellow real estate agents regarding stigmatized properties
5:02 - A helpful website to use called Housecreep.com
5:38 - Advice to fellow realtors if their seller client says there was a stigmatized event that occurred on the property
6:11 - The onus is on the buyer in figuring the details of a property and any related stigmas
6:28 - Tips for buyers who are purchasing a stigmatized property
7:09 - Advice for homebuyers to avoid purchasing a stigmatized property
7:21 - Legal clause for a Purchase Agreement, to protect against buying a stigmatized property
Today's video is just in time for Halloween and we're going to talk about stigmatized properties. And stick around to the end of the video where I share some tips for those of us who are buying or selling a stigmatized property.
So what is a stigmatized property?
In real estate, a stigma is a non-physical attribute of a property that some people might feel psychologically or emotionally unsettled by. The most common examples are murder or suicide that's happened on the property, or if there have been reports that the property is haunted.
Other common stigmas are related to criminal activity such as the site of a former grow op, even if its been remediated by local health authorities.
Also, a property that's been used for drug dealing, a brothel or a chop shop, those all fall under the category of a stigma.
And it's also important to consider who has previously lived at the property. If there's been a known serial killer or an organized leader that has lived there, that can leave a stigma with the property as well.
Now one thing to keep in mind is that a stigmatized property could be a circumstance that's related to a neighbouring property. For instance, if there was a pedophile living next door or the neighbouring property was the site of a gruesome murder, those circumstances could have an impact on the neighbouring properties as well.
Something that you might see in both big cities and in small towns, are houses or even condominiums that are right beside a cemetery. And some people find that a bit unsettling.
So keep in mind when you're purchasing a property, you're also buying into a neighbourhood.
Now, let's share some tips for those that are selling a stigmatized property or perhaps purchasing a stigmatized property.
A big question is whether a seller has to disclose a stigmatized event to a buyer. Now in the province of Ontario, there is no law requiring sellers to disclose a stigmatized event. And because stigmatized events generally bring down the price of a property, it's not in the favour of the homeowner to disclose any stigmatized events to a potential buyer.
So in Ontario, if you're selling a stigmatized property it's in your best interest to not openly disclose any facts related to a stigmatized event, especially since you don't have a legal obligation to do so. Now, a lot of homeowners who are selling a property, they hire a real estate agent such as myself, to help them with the process. And this leads us to the next question: do real estate agents who are representing sellers, need to disclose a stigmatized event to a buyer?
So to tell you the truth, there isn't one clear straight answer. And the reason is because there's two completely different answers from both licensing boards that govern Ontario real estate agents. In Ontario, real estate agents are governed by rules set by OREA, which is the Ontario Real Estate Association, and by RECO, which is the Real Estate Council of Ontario.
You would think that OREA and RECO would give you the same straight answer, but they don't. With OREA, they state that yes, real estate agents representing sellers have an ethical obligation to disclose a stigmatized event to any potential buyers.
However with RECO, they state that the real estate agent representing the seller has no obligation to disclose a stigmatized event to a buyer.
In fact, Joseph Richer, who currently overseas and enforces all the rules from RECO has said that a seller's agent does not even have to answer direct questions from a buyer that are related to a stigmatized event. According to RECO's registrar, a seller's agent can simply advise a buyer to conduct their own research regarding any questions related to a stigmatized event. And the reason for this, as RECO stated, is that the listing agent has a fiduciary duty to work in the best interests of their seller client. By disclosing a stigmatized event, we're actually working against a seller's best interest.
Now the general public might side with OREA and feel that real estate agents have an ethical duty to disclose any stigmatized event. However, keep in mind that real estate agents represent two different sides to a transaction. A real estate agent that's representing a seller, owes a fiduciary and legal obligation towards their seller client only. So we can look at it this way: if a seller client does not want their agent to disclose any facts about a stigmatized event, is that agent being unethical towards their client and doing them a disservice if they go behind their client's back and start to disclose facts to potential buyers? This is something to think about as a listing agent.
I know as realtors, it's not common practice at all for us to ask our seller clients if a stigmatized event happened on the property. My best advice for other real estate agents is to do your own due diligence before meeting with seller clients for the first time. Start by doing an online search of the address. One resource is a website called Housecreep.com, where you can search by using an address either in Canada or the USA and it often states if there's been any stigmatized events related to that property. Just keep in mind that the website is not all-encompassing. I have come across properties that were related to a stigmatized event, particularly suicide, and the address was not listed on Housecreep.com.
With that being said, an online Google search using the property's address and double-checking it with Housecreep.com, is a good place to begin your due diligence.
And when we meet with sellers as real estate agents, ask the homeowner if there's been any circumstance or event that could be seen as a stigma. If your seller client says yes, there is a stigma event related to the property that's being sold, then I would suggest consulting with a local real estate lawyer as well as your Broker of Record, to ensure that both legal and ethical protocols are followed correctly. This way, we avoid any legal recourse for our seller clients while continuing to represent our clients in their best interest.
Now, this brings us to our next important point: if sellers don't have a legal obligation to disclose a stigmatized event to potential buyers, that means the onus of due diligence rests on the responsibility of buyers. Again, it's all buyer beware.
So here's a couple of tips I have for buyers to protect themselves.
First, as a buyer, you'll want to talk to your real estate agent about your thoughts on stigmatized properties. You'll want to have an honest conversation about what you're comfortable with. Now if stigmatized events do not bother you at all, my advice is to still negotiate the lowest price possible and use the stigmatized event as a negotiating tool. The reason for this is that your future resale value is likely to be negatively affected by this stigma event as well. So if you're going to take a hit on selling the property for less money in the future, you might as well get a discount upfront when purchasing the property. Now if you're purchasing a property and you're not comfortable with stigmatized events, the best thing you can do to protect yourself is to insert a legal clause in the Agreement of Purchase and Sale. The legal clause could read something like this and I would suggest customizing it with your real estate agent. If a buyer inserts this type of clause into an Agreement of Purchase and Sale, this clause now puts the seller under a legal obligation to disclose the truth. And having this clause in the agreement will also help a buyer if they decide to take legal action against the seller in the unlikely event that the seller did not disclose the truth to the buyer.
Now a second tip for buyers, if you have the extra time and want to go the extra mile, you can knock on the door of the neighbours to speak with them. You can introduce yourself and let them know you're interested in purchasing the house next door. Feel free to ask them what they think of the neighbourhood and just through conversation, neighbours tend to talk with one another. If there are any stigmatization issues with the property you're thinking of purchasing, most likely one of the neighbours you speak to will bring it up.
So now you guys know about stigmatized events when it comes to real estate.
Let us know in the comments below if you have any questions or experiences with stigmatized properties.
And in the meantime, if you have any real estate questions or needs, give us a call.