Many who sell real property at auction are required to disclose all known (should have known) material (latent) facts about property belonging to clients … and in some cases past clients.
This isn’t a bad idea when selling personal property either and two Nobel Prize winners (Paul Milgrom and Robert Wilson) would agree with us that with more disclosure, auction bidders bid more.
We’ve written previously about Paul Milgrom and Robert Wilson including here: https://mikebrandlyauctioneer.wordpress.com/2020/10/16/providing-as-much-information-as-possible/.
What is property stigmatization? Here’s one such definition:
A property that has been psychologically impacted by an event which occurred, or was suspected to have occurred, on the property, such event being one that has no physical impact of any kind. The National Association of REALTORS®
Stigmatizations include such things as haunted, death, suicide, a heinous crime, and the like. It’s an event that involved the subject property but doesn’t impact it physically.
Our question today involves if such an event would need to be disclosed. Most states do not specifically require disclosure of stigmatizations, but some do. As well, wouldn’t it be prudent to disclose such even if you “don’t have to” to provide more disclosure and avoid costly litigation?
Many attorneys recommend disclosing all material (latent) facts including any stigmatizations for that very reason. Buyers who find out later about the property being haunted, the scene of a death, suicide, or heinous crime are upset such wasn’t disclosed prior and often seek legal recourse.
The argument that “Well, just because there was a suicide there 3 years ago … that doesn’t impact the property’s value” doesn’t hold water. If it doesn’t impact property value, why not disclose it? There’s certainly an upside, but what’s the downside?
Of course, someone will reply, “But there could be that bidder who thinks it does matter …” and that’s a reason to not disclose? If that same bidder becomes your buyer and thinks it matters, what do you expect the result to be? Just one more example of auctioneers not seeing the forest for the trees: https://mikebrandlyauctioneer.wordpress.com/2020/07/10/forests-trees-and-policies/.
Sometimes too, the argument is that “haunted” — for example — isn’t a fact and so there’s no obligation to disclose. As our above definition notes, “… or was suspected to have occurred …” and we again note, what’s the harm in disclosing? Only those who believe property can be haunted will consider it … exactly the reason to tell them.
Frankly, the tendency of auctioneers to generally want to hide (not disclose) material issues is concerning, and the public has taken notice; they have choices as to where they shop, and with less and less disclosure, they will continue to shop elsewhere.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.
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