Brokers may continue to debate the fiduciary obligations around so-called stigmatized properties, but with one particular type they’re increasingly having to go beyond the letter of the law.
“Disclosure comes down to provincial regulations surrounding real estate; so if you know it, you have to disclose it,” Pierre Leduc, media relations specialist with the Canadian Real Estate Association, tells REP. “The actually penalties are set by the regulators, so the regime in British Columbia might not be the same in New Brunswick.”
Barry Lebow, a Toronto-area agent and expert in stigmatized property says that, in the 1990s when the economy collapsed, several properties were sold as is and their histories were not disclosed. The truth about the home’s history would often come out when a neighbour mentioned its past.
“My best advice is, don’t buy a house without first doing a Google search,” he tells REP.
But it’s the responsibility of the agent to inform adamant buyers – “They’re buying either because the location is superb or they think it’s a great deal,” Lebow says – that purchasing stigmatized properties, like former grow ops or homes where certain crimes took place, pose a number of challenges, the most glaring of which is financing.
“You can’t even approach it without first having your mortgage money in place,” Lebow says. “You have to get a mortgage commitment in place and that is extraordinarily difficult. Most lenders won’t touch it.”
Even after remediation efforts have taken place to get the property in tip-top shape, finding a lender is going to be a challenge.
“You would have to go to a B-type lender,” Kevin Skipworth, managing broker at Dexter Associates Realty in Vancouver, tells REP, “where you’d get higher interest rates.”
From a seller’s perspective, not many people line up to purchase a home that once housed criminal activity.
“It’s a stigmatized property so that affects the number of buyers that are going to be interested,” Skipworth says. “It’s a required disclosure, so it could be difficult to find the right buyer.”
Lebow, who also has a law background, says the current laws include no statute of limitations on disclosure.
“So 100 years in the future, you still have to disclose this fact,” he says. “That’s where the problem lies. The average person is stuck with something that is going to last forever. You have a problem, you remediate the problem, the government says the problem is gone. Why do you need to disclose 10, 20, 30 years later?”
Still, some Realtors believe that for the right client – one who has a heap of disposable income – stigmatized properties such as these can be lucrative. The property can often be scooped up at a discount and completely torn down, allowing the buyers to bypass the red tape in dealing with a former grow op and ensure that the property is safe for inhabitants.
“If you’re buying [the property] for land value as a tear down, it has nothing to do with the house,” Lebow says.
