Haunted Houses Come Cheap

Buying a stigmatized property can be a great bargain.

You can't believe your luck. After months of searching for just the right property, you've found a steal. New kitchen and baths, lots of windows to take in a great view, tons of upgrades, great neighborhood, and it's priced 20% below the most recent home sale on the street.

The catch? A previous owner was an unsavory character with a notorious past. It doesn't matter whether the neighborhood gossip is true or false. The word is out.

Welcome to what's known in the real estate industry as the world of "stigmatized properties." These are homes that, because of a dubious past owner or because they've been the site of a publicized crime, are selling below market value.

Stigmatized homes can give you an incredible deal -- if you can get used to owning a property that draws tourists who seek out the scene of a legendary crime.

Real-estate experts break stigmatized properties down into two distinct classifications: Those with "physical" and those with "psychological" damage. A physically damaged property could be one that survived after its neighboring home fell into a sinkhole or was buried by a landslide. The owner may be thankful his house didn't get a scratch, but he's selling and moving to safer ground just the same.

Psychological damage is the kind that raises the hair on the back of your neck. It could be a house where psychics wave their hands around the doors to get a sense about the many spirits inside, or a property that became an armored compound a few years back by a prison-bound drug lord.

Real estate agents may not be required to tell you about a potential stigma regarding the house you're checking out, depending on state law. And even then, what constitutes a stigma may be up to the potential buyer's judgment. Some may feel fine about buying a house where a murder once happened. Others may be squeamish even looking at a home where an elderly owner died peacefully.

There's also the element of potential stigmas affecting real estate.

Anyone can look up on the Internet to see where registered sex offenders are living. If there's one a block away from a house for sale, that home's selling price could be compromised.

And even if the house you're looking at never belonged to Ted Bundy, it could still be stigmatized.

"Let's say there's a famous murder that took place at the house down the street," said Barbara Nichols, a Beverly Hills, Calif., Realtor and author of The No Lawsuit Guide to Real Estate Transactions (McGraw-Hill 2007). "For a long period of time, you may have to deal with traffic and tourists in the neighborhood. That's going to affect everyone's property values."

How much could you expect to take off the price for a stigma?

Market conditions and the property's desirability are a big determination here. A luxury home on a premium lot probably wouldn't see much of a discount, since a new owner could factor in a massive remodeling or teardown of the stigmatized house and rebuilding -- think O.J. Simpson's Brentwood, Calif., estate, which sold relatively quickly after he moved to Florida, at close to the asking price of $4 million. The more modest Scott and Lacy Peterson home in Modesto, Calif., has been through a couple of new owners and has been discounted during its sales.

"If there's been an unusual stigma like a murder or an infamous owner, it's often appraised very carefully," Nichols says. "A good appraiser will examine the sales of homes in similar areas under similar circumstances and show how they were affected price-wise."

When checking out a home that looks like a bargain, don't forget to ask about any potential bad history, just in case it slipped the agent's mind. "This is especially true if you're shopping for a home in state outside of where you live," Nichols says. "You may be familiar with the area, but they may not have the same disclosure laws compared to where you live now."

If you're considering buying a stigmatized house, it's not a bad idea to do some research on your own to find what exactly the stigma is all about. Urban legends can develop quickly, and it's not unheard of to find that a home where everyone in the neighborhood believes a horrendous murder once took place is actually crime-free.

If that were the case, you could take the discounted price and count on hosting a great scary party over Halloween.