The Downsides Of Purchasing A Property That's Stigmatized By Its Past

Occasionally, you might find a gorgeous home listed for an unbeatable price. However, upon further exploration, you'll often realize that this real estate is a "stigmatized property." In other words, a piece of land that has few takers for reasons other than faults in its physical attributes. This begs the question: What could potentially reduce a beautiful property to such a dubious status, and should it raise your hackles about purchasing it? Spoiler alert: It should, particularly if you plan on reselling the property in the foreseeable future. But to know the complete details, follow through House Digest's exclusive interview with Joy Aumann, licensed realtor (CIPS), interior designer, and co-founder of LUXURYSOCALREALTY.com.

Aumann highlights that a property's past association with criminal activity (think drug manufacturing or murder) or emotional tragedy (like suicide) can leave it stigmatized, especially if it received media coverage. Similarly, "properties with a controversial history, like being a former prison, or connection to a notorious figure with a negative reputation" invoke little interest, she adds. That's because "it can be hard for some people to separate the property from its history, and they fear being associated with it." In addition, properties previously contaminated with asbestos, mold, lead, or any other environmental hazard that puts health and safety at risk are perceived negatively. Although sellers attempt to neutralize these factors by lowering home prices, there's more to consider.

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A home's tragic past can overshadow its future, even if it doesn't bother you. In her exclusive chat with House Digest, Joy Aumann explains, "The most obvious issue that the buyer may encounter is a lower resale value." Essentially, any negative perception about a property makes people hesitant about investing, making it a hard sell. "It's likely that you'll be faced with limited buyer interest, which also makes it harder to negotiate and will ultimately affect the profit you make from your investment," she elaborates. In the worst circumstances, you might have to resell the property at a massive discount or loss.

Lest you consider playing it smart, treating the stigma as any other important property information that real estate listing sites can't tell you — so why should you as the vendor? — reconsider. "You have to know that in some jurisdictions, there are certain stigmas that you, as the seller, are legally obligated to disclose to potential buyers. If not, you could face serious legal complications in future property transactions," warns Aumann. For instance, in California, a buyer has the right to know if someone died in a house in the last three years. Conversely, if you turn the bought property into your permanent home, you might face difficulties while applying for a mortgage or be charged higher insurance premiums. This is especially true for homes with a violent or drug history, insists Aumann. Accounting for repairs and personal safety for structurally damaged or contaminated properties is equally paramount to avoid cost overruns.

Not everything is a red flag in this financial equation, as Joy Aumann adds in her exclusive House Digest interview, "With a stigmatized property, you, as the buyer, have the bargaining power." In contrast, the seller will want to close the deal quickly given the negative association, and be more willing to negotiating a lower price. Even in the hottest housing markets in the U.S., there'll be less buyer competition to contend with. "There's also the opportunity for equity gain," adds Aumann. "If you're able to purchase the property at a significant discount, you have the chance to build equity quickly — particularly if you can and are willing to address the stigma to improve the property's appeal."

So, how would you know if proceeding with a stigmatized property purchase is right? "The first thing to do is to consider if this property will be a personal home or a long-term investment," recommends Aumann. Then, factor in "hidden risks or costs associated with the property that you are not willing to deal with." For that, Aumann suggests hiring professionals like reputable inspectors, experienced real estate agents, and real estate lawyers, as they have a better gauge of redressal (or irreversibility) of the accompanying stigma. Wherever redressable, compare the purchase price to the final price, inclusive of any repairs and future-proofing costs (especially for flooding, fire, and toxic waste), and make your call accordingly. Of course, Aumann notes that physical safety is also worth considering; you should weigh up health risks that come from exposure to toxic waste or asbestos against any financial savings you might be making.