Summary
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- Understanding Stigmatized Properties: These properties are shunned due to non-physical factors like criminal activities or paranormal events, impacting their market value and legal considerations.
- Types of Stigmatization: From criminal activities to environmental contamination, various factors can stigmatize a property, affecting its desirability and valuation.
- Identifying Stigmatized Properties: State disclosure laws vary, requiring thorough research through online resources, local agents, or police records to determine a property’s stigma.
- Appraisal Considerations: Appraising stigmatized properties demands legal expertise, understanding of supply-demand dynamics, adjustment approaches, and strategies to generate business, potentially through partnerships with law firms or niche market specialization.
Are you looking for a niche specialty or a way to expand your appraisal business? Specializing in properties perceived as stigmatized presents both challenges and opportunities for appraisers. Get an overview of this property type, including the definition of a stigmatized property, the different types and their impact on property value, key considerations for appraising stigmatized properties, and some real-world examples and tips shared by experienced appraisers.
Learn more in our CE course, “Complex Properties: The Odd Side of Appraisal.”
What is a stigmatized property?
A stigmatized property is generally defined as one that buyers or renters shun for reasons unrelated to its physical condition or features. Examples include properties where events like murder/suicide, criminal activity, or paranormal activity have taken place—or are rumored to have taken place. Haunted houses, drug dens, and violent crime settings are likely to carry a stigma that makes them less desirable and devalued by the marketplace.
Laws or guidelines related to the sale of stigmatized properties are determined by the state and may vary from jurisdiction to jurisdiction.
Types of stigmatized properties
A property may become stigmatized for a variety of reasons:
- Criminal activity – Illegal activity (e.g., drug dealing, violent crime) took place on the premises.
- Murder/suicide – A murder or suicide occurred on the property. Disclosure depends on state law. For example, Maryland law does not require disclosure, whereas California law requires that these events must be disclosed.
- Paranormal activity – The property is notorious for hauntings, ghost sightings, etc. and is rumored to be “haunted.”
- Public stigma – A public property that has a widely-known stigma, such as The Amityville Horror house.
- Environmental contamination stigma – A property that is contaminated or in close proximity to facilities with hazardous materials and potential environmental problems.
- Debt stigma – A property formerly owned by debtors may deter new buyers because they’re worried about potentially being harassed by debt collectors.
- Abandoned property stigma – While having a negative effect on neighborhood property values, vacant and abandoned properties can also be a good “fixer-upper” opportunity for investors or homeowners with the right skills.
- Sex offender stigma – A property located in the same neighborhood as a known sex offender may be stigmatized by its proximity to a potential predator.
How to find out if a property is stigmatized
Disclosure laws related to stigmatized properties vary from state to state, so you may need to do a little digging to learn if a property is stigmatized. Check online resources (sometimes a simple Google search will tell you what you need to know), ask local real estate agents, or contact the local police department to find out about past events or rumored happenings associated with a certain property.
Additionally, there are online search subscription services available that provide information on whether a house is known to have had a death at the address (murder, suicide, or accidental), involvement in a meth lab, presence on the sex offender registry, and fire-related incidents.
Considerations for appraising stigmatized properties
No matter what your current specialty, the area of appraising stigmatized properties is worth exploring, as it offers a unique opportunity for business growth and career development. Representing a small part of the appraisal field, stigmatized properties require extensive research and a high level of knowledge and experience. Furthermore, they involve legalities that vary state by state. Such factors make stigmatized property appraisal a challenging yet potentially profitable niche.
Legal considerations
As an appraiser, you are dependent upon state law as to the level of detail and exposure allowed. Some types of stigmatized properties must always be disclosed, some are determined by the jurisdiction, and occasionally it is left up to others (e.g., the seller or real estate agent). So, one size does not fit all. You must take your state’s laws into consideration when deciding whether to accept an assignment.
Supply and demand considerations
A violent crime is often considered a major deterrent by buyers and (although psychological) can cause the property to be devalued by the marketplace. However, this situation can be offset by the desirability and convenience of location. Additionally, the stigma tends to lessen over time.
Adjustment approach considerations
The availability and approach for identifying comparable properties depends on the type of stigmatization. If you specialize in environmentally stigmatized properties, for instance, you will most likely find an array of published data that you can use to make a case for a measurable adjustment.
The research needed to identify and derive an adjustment when appraising a murder/suicide property, on the other hand, involves thinking outside the box and coming up with a reasonable method. Researching crime records, comparable areas, number of murders within a given period, and type of murder/suicide, and developing the framework for comparison and analysis, requires extensive research and skill.
Real-world examples of appraising a stigmatized property
As part of our monthly survey series, we asked members of our appraisal community, “Have you ever appraised a stigmatized home?” Many reported having no experience with stigmatized homes, but others shared a story or piece of advice. Here are a few real-world examples shared by appraisers, followed by some takeaway tips:
“Had a property with a significant black mold problem, so I worked with a realtor who had recently sold a home with a black mold problem to help me develop a functional depreciation adjustment. The marketplace accepted the adjustment and the home sold to someone who was planning on rehabbing the house.”
“Appraised a home in which a murder took place years prior. The owner actually had the newspaper article on the table in the room it occurred. The property was a home with so much character, and [since] it happened years prior, there was no stigmatization to the property.”
“I received a request to provide an appraisal on an existing home for a purchase transaction. In researching the property in the local MLS, it was discovered that the property had been on the market for over seven months when typical marketing time was running 30-60 days on average. In looking at the price history, it was revealed that the subject had undergone multiple price reductions, and the current asking price was under what similar homes in the market were selling for. The listing did not have any information that would explain the low price and extended marketing time, so a call was placed to the listing agent to glean some additional information. The realtor was very forthcoming in letting me know that there had been a murder at the property a couple years earlier. An online search of the subject’s address confirmed that this was accurate. So a typical purchase scenario now became a complex assignment, and the client was notified of what had been discovered. Additional compensation was requested due to the expanded scope of work that would be required to determine the market’s response to this atypical scenario. I started by researching properties that had been the scene of a murder going back in time ten years (you would be surprised how many of these you might find). In researching each of the homes that were found, it was revealed that the average marketing time went from under 60 days to greater than 120 days, and all sold between 10-18% below similar homes in the market. Conversations with the realtors associated with these various transactions indicated that the sellers were reluctant to offer discounts initially (these were typically surviving children or relatives), but after 30-45 days of no or very limited traffic, price reductions occurred. While this scenario is atypical, taking a methodical approach to research (as with any appraisal assignment), allows the appraiser to develop credible assignment results.”
Key takeaways
Based on the survey responses, here are a few tips for appraising a stigmatized property:
- Low price and/or extended marketing time could be a sign of a stigmatized property
- Talk to real estate agents to gain helpful information and insights
- Conduct careful and thorough research
- Be patient and methodical
- Negotiate a higher fee if a property turns out to be stigmatized
Want to participate in our monthly survey series for appraisers? Sign up for our newsletter to get the next question delivered to your inbox.
How to generate business and find clients
Just as appraisers specialize in niche markets, so do attorneys. One way to grow your business is to develop a relationship with local attorneys handling litigation for stigmatized properties. The affiliation with a law firm can lead to increased income, as making the transition to becoming an expert witness in stigmatized property cases would be a natural offshoot.
Because stigmatized properties are the result of a situation, opportunity lies in the event and the expansion of any niche market. For example, say you specialize in appraising water-front properties. If you see properties in your area becoming stigmatized by an environmental condition such as phosphorous run-off from development, this opens the door to add the sub-category of “stigmatized water-front appraising” to your list of specialties.
Owners of stigmatized properties need pre-listing appraisals. A pre-listing appraisal of a stigmatized property can help to alleviate the fear of the unknown for a buyer and demonstrate the seller’s due diligence.
Finally, business can also be obtained from civil engineering firms, surveying companies, and some governmental agencies.
Learn more about stigmatized property appraisal
Interested in appraising stigmatized properties? Learn more with our CE courses, “Appraisal of REO and Foreclosure Properties” and “Complex Properties: The Odd Side of Appraisal.” We also offer a livestream course on “Appraising Complex and Stigmatized Residential Properties” (check your state’s continuing education page for availability). Get unlimited access to these appraisal courses—and much more—when you become an Unlimited Learning Member.
This post was originally written by Carole McCullough in 2017 and updated with significant revisions in 2024.
