With half of 2024 gone, it's time for our Mid-year review of HSH's 2024 Mortgage and Housing Market Outlook. Have a look and see how we're doing!

With half of 2024 gone, it's time for our Mid-year review of HSH's 2024 Mortgage and Housing Market Outlook. Have a look and see how we're doing!

Horrible history of a home may be hidden from buyers

Murder, She Wrote. Or maybe she didn't write it all, because not every state requires disclosure of a home's grisly history before a sale.

Two years ago, a young doctor and his family rented a home in North Brunswick, N.J. After signing the lease, he got around to talking with the neighbors, who told him there was an unhappy history to the property: The previous owner died there and the body wasn't discovered for months.

As a doctor, he didn't think twice about the gruesome history of the home he was renting. That was not the case with the prior tenant: Upon learning of the house's history, he moved out because of the "bad karma."

The landlord hadn't told the doctor of the death; he learned it from neighbors. This might have been a different story if the doctor had been trying to buy the home, though. New Jersey's administrative code requires Realtors to inform prospective buyers about any psychological impairment they know about--which includes "murder or suicide which occurred on a property, or a property purportedly being haunted."

Disclosures for "psychological impairment" vary by state

Homes with a bad history are labeled "psychologically impacted" or "stigmatized." Depending on the state, real estate agents may not be required to inform prospective buyers of homes with such pasts. Currently, about half the states have disclosure laws. For homebuyers in the rest of the states, it's buyer beware.  Even in the states with disclosure laws, there is variability in what stigmatizing events must be disclosed.

Arizona, for example, passed legislation in 1995 (since amended) that declares that a seller is not required to disclose to the buyer a history of murder, suicide or presence of HIV or a nearby sex offender, says Christopher Combs, an attorney with the Combs Law Group in Phoenix.

In Boston, an investor owned a condominium unit that was rented to a mother and her two children, one of whom was a teenage boy with a mental illness. One day in February 2008, a psychiatrist visited the teenager at the condo. The teenager flew into a rage and stabbed the psychiatrist to death.

Following the incident, the investor renovated the whole apartment and put it on the market. Neither he nor his agent mentioned the case because, according to Massachusetts regulations, a history of homicide is not considered a "material defect" and doesn't have to be disclosed.

Do homebuyers have recourse?

What if, after buying a property, you learn of a grisly murder that wasn't disclosed before the purchase?

If you were the buyer of the Massachusetts condo, the state's statute would mean you have a weak legal case against the seller. However, in states without clear laws on the issue, you might have more recourse.

According to Combs, one of the most important legal rulings involving psychological impairment to a property occurred in California several decades ago.

"In the 1970s, a mother and three children were murdered in a Los Angeles home. The residence sold numerous times over a period of 10 years, and then an older woman bought it. When someone told the buyer about the murders, she wanted to rescind the transaction," Combs says. "A 1983 California appeals court decision permitted rescission of the purchase."

However, that decision prompted California to pass legislation limiting the requirement for disclosure of a murder or other violent crime occurring in a home to three years after the event.

Recovering lost worth may be option for some homebuyers

If you do unwittingly purchase a home with a psychological impairment, reversing the transaction may not be an option if you live in a non-disclosure state. However, you could try to recover the amount you feel you have lost because the home may be worth less than the price you paid.

That's where an expert such as Randall Bell of Bell Andersen & Sanders, LLC, in Laguna Beach, CA, comes in. Considered an authority on the economics of real estate damage, Bell helped advise on the sale of the home in Boulder, CO, where 6-year-old JonBenet Ramsey was found murdered in 1996. (The house did sell at a loss.)

One of the cases that Bell is currently working involves a Pennsylvania woman who bought a house and subsequently learned from neighbors that a murder had occurred inside. Her children were teased about living in the house, and the homebuyer eventually filed a lawsuit against the seller and broker. Bell has been hired to compute the loss of property value.

How much can a bad history affect a home's price? According to Bell, a recent and significant event (such as a homicide) in a property's history can cause its value to decline 10 percent. If the event occurred years in the past, the value may not be affected much, but the home may sit on the market longer.

In 2001, Wright State University professors James Larsen and Joseph Coleman studied psychologically-impacted houses in Ohio. In their survey, Ohio real estate brokers reported that homes with bad histories sold for about 3 percent less than non-impacted houses, but they stayed on the market 45 percent longer than the average home. Larsen and Coleman's interpretation is that owners of these properties had to keep their homes on the market until they eventually found a buyer who didn't care about the home's history.

How to research a home's history

What are ways you can find out if the home you're considering purchasing has a lurid past?

  1. Learn the disclosure practices in your state: The National Association of Realtors (NAR) suggests checking with your state's real estate commission, which can tell you the statutes on the books about disclosure or the recommended practice for Realtors working in that state. The NAR also has a resource page for Realtors in its Field Guide to Dealing With Stigmatized Properties, which will give you the scoop on what agents might or might not disclose.
  2. Just ask: In states where disclosure isn't mandatory, you can still directly ask the seller's agent if he or she knows of violent crimes, deaths or other stigmatizing events in the home's history.
  3. Check the local newspaper: In a recent National Mortgage News column, real estate writer Lew Sichelman suggested creating a list of former owners from property deeds available from the county. Then look through local newspaper stories or obituaries online for those same names.

Another way to avoid buying a haunted house without your knowledge is to talk to the neighbors. Neighbors seem to know everything and can't wait to tell.

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