Real Estate FAQs

What Nonphysical Aspects of Real Estate Do Sellers Have to Disclose to Prospective Buyers?

Generally, a real estate seller has to disclose material physical problems with the property to potential buyers, usually on some type of government-mandated disclosure form. But would a seller be required to reveal a nonphysical fact about a property that may affect both whether a buyer would want to purchase the property and potentially the property’s value? Certainly a controversial house history can make for a tough sell.

Stigmatized Properties

Some people are uncomfortable with the thought of living on property where violent crime or suicide occurred; a criminal lived; a previous occupant had a serious disease, such as AIDS; or hauntings have been reported. These properties are referred to as stigmatized or sometimes psychologically impacted. Whether or not a person is bothered by such previous events in a home depends on his or her individual disposition, religious beliefs and cultural background.

Practically, if a buyer is not bothered by stigma, the property might be a good value. Sometimes such properties are purchased for relatively low prices and then either demolished or completely remodeled. Occasionally, such a property has attracted a relatively high price because of its previous events.

Various Modern Approaches

Whether a seller has to reveal a stigma about his or her property is normally a question of state law, and the states vary widely in how they answer this question. State law concerning stigmatized properties may be set forth in statute, in case law or both. It is a difficult public policy question that requires the balancing of the buyer’s right to know something that may materially affect the ability to feel comfortable at home and the owner’s need to sell a property that is not going to be physically harmful to the buyer.

Some states require disclosure of stigmatizing events, and some states have laws specifically classifying such facts as nonmaterial to a real estate transaction and not requiring disclosure. Even in nondisclosure states with so-called shield laws, the laws vary about what the seller must do when the buyer asks directly whether a stigmatizing event has happened. By contrast, at least one state requires sellers to disclose certain traumatic events.

In states where stigma should have been revealed in particular situations, distressed buyers have at times been allowed to rescind the purchases.

Practically, even if a seller is not legally required to reveal a stigma, it may be in his or her best interest to do so since the buyer will probably eventually learn of it through another source and may attempt a legal solution.

Finally, a difficult question is raised by the classification of HIV or AIDS as a handicap under the federal Fair Housing Act (FHA). The FHA prohibits discrimination in the sale of dwellings based on handicap. A knowledgeable real estate lawyer should be consulted to determine whether to disclose the HIV status of a former occupant since the revelation could be interpreted to violate the FHA.

Conclusion

Because the state laws vary so much and each situation is so unique, it is critical that an owner of stigmatized property consult with an experienced real estate attorney to understand whether he or she is required to disclose the stigma and under what circumstances. Similarly, a buyer who feels that he or she would be influenced by stigma in the decision whether to purchase a property should obtain legal advice about what information must be disclosed before approaching potential sellers.

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