In real estate, stigmatized property is property which buyers or tenants may shun for reasons that are unrelated to its features or physical condition. These reasons can include: death of an occupant, murder, suicide, serious illness, illegal activity or the belief that a house is haunted.
Stigmatized properties can present challenges in real estate, and realtors have certain obligations in regards to the disclosure of such stigmas.
The Real Estate Council of Ontario (RECO) is the real estate industry regulator, and states that, unlike a latent or patent defect, “there is nothing physically observable or measurable associated with a stigma.” However, due to personal beliefs and opinions, a stigmatized property may elicit a psychological or emotional response from buyers, which consequently will affect the value of a home. The following is a more detailed list of possible stigmas:
- the property was used in the ongoing commission of a crime (e.g., drug dealing, chop shop, brothel);
- a murder or suicide occurred at or near the property;
- the property was previously owned by a notorious individual (e.g., organized crime leader, known murderer);
- there are reports that the property is haunted;
- the property housed a former grow-op which has been remediated, according to the local health or building authority.
According to a RECO report, “there is no legislation or case law in Ontario to suggest that a seller, or his or her representative, is required to disclose the existence of stigma to buyers.”
How Can Buyers Protect Themselves?
It is crucial that buyers make their Realtor aware of their attitudes and concerns about a property, including their feelings about stigmatized properties. RECO says that “when representing a buyer, it is the obligation of a registrant to use their best efforts to identify properties that meet the buyer’s criteria and to generally promote and protect the interests of the buyer.”
Buyers that are concerned about stigmatized property should conduct – with the assistance of their Realtor – an investigation into the home(s) they are interested in purchasing. This investigation could include an internet search as well as making direct inquiries of the seller, the seller’s agent and the people in the neighbourhood in which the home is situated. To further protect themselves, buyers can request that their Realtor include a warranty in all offers, stating that the seller is guaranteeing that the home is free from specific stigmas.
What Can the Seller’s Agent Disclose?
According to RECO, all sales representatives have the duty to act with fairness, honesty and integrity. They must put forth their best effort in “preventing error and misrepresentation while still promoting and protecting the best interests of their clients”. Therefore, the Realtor representing the seller can either answer direct questions regarding any stigmas associated with the property, or he or she can refuse to answer and instead suggest that the buyer “ascertain the answer for themselves”.
The Ontario Real Estate Association (OREA) suggests that “to avoid problems for the seller in the future, Realtors are advised to have a discussion with their seller about stigmatizing issues and disclosure. Even though it may be that the seller and seller’s representative have no legal obligation to disclose a stigma, the safest and most prudent route may be to disclose it in order to prevent problems with the transaction in the future”. According to OREA, “when in doubt, disclose.”
Buyers who work with their agent to take a proactive, communicative approach to stigmatizing issues will be in a better position to protect themselves from buyer’s remorse and future lawsuits.