4 Steps in Dealing With Stigmatized Property

March 1, 2007

The possibility of environmental problems or other stigmas relating to a property can stop a transaction cold. Try these strategies to reduce the threat of liabilities from stigmas.

  1. Consider the source. Investigate the accuracy and source of information you receive about a stigma. Sometimes rumors and unsubstantiated information gradually become accepted as fact. Check law enforcement agencies, newspaper accounts, and even neighbors to try to determine the truth.
  2. Find out your disclosure responsibilities. Many states have laws that address the requirements for brokers and salespeople to reveal particular stigmas, such as homicides or occupants with the AIDS virus. Laws protecting the privacy of individuals are another factor that should influence your decision.
  3. Determine whether the stigma is material to a buyer’s decision. In the absence of a specific law, consider whether the stigma is a material fact that would probably influence reasonable buyers’ decision to purchase the property or the amount of money they’d be willing to pay for it. For example, the fact that the house belonged to a government official imprisoned for fraud may be sensational, but it probably won’t affect how valuable the property is to another buyer.
  4. Talk to sellers about the need to disclose. It’s critical to explain to sellers the possible benefit of disclosing a stigma rather than having buyers find out about it on their own. Also, explain to them that they needn’t disclose the stigma to every casual looker. Disclosure is necessary when a looker is interested enough to make, or to consider making, an offer. Sellers should make the disclosure as early in the process as state or local law requires, allowing serious buyers sufficient time to consider the stigma.