Something to think about this Halloween...

Ghoul Disclosure: Must Home Sellers Disclose Paranormal Activity?
Susan Funaro
Published on Legal Zoom Newsletter 10/25/07

As home seller, you dutifully check off the "to do" list your realtor suggests for a quick sale—curb appeal, leaky faucets fixed, termite reports, and oh, what about the other occupants? Do I have to mention them? This question brings new meaning to the saying, "Buyer Beware!" If the thought of buying a house isn't scary enough, does the buyer need to worry about checking for poltergeists along with old plumbing?

Although the wording may vary state to state, most real estate laws require sellers to disclose known problems with the house. This includes certain "material facts" such as structural concerns, the age of the roof and shingles, leaks in the foundation and walls, existing mold and mildew, and total square footage. Material facts can also include other items that affect the house's value such as the amount of property taxes, details about individuals who claim to have an interest in the house, or overlaps on adjacent properties.

Items not considered material facts include personal information about a seller, such as pending foreclosure or divorce, illnesses of the seller, or the seller's reasons for moving (uh oh!) What if the seller's reason for moving involves the paranormal? Remember the unhappy inhabitants in Poltergeist, The Amityville Horror, and The Others? Must a seller disclose whether their property is haunted? Or what if a heinous crime, murder, or suicide occurred on the property?

Death on a property may be material. In California, the Association of Realtors addressed the issue of death disclosure requirements. Civil Code §1710.2 states death on a property need not be disclosed if it occurred more than three years prior to the sale. The statute does require disclosure of a death more than three years old if the buyer asks. It does not state whether a death within three years must be disclosed, but many brokerage firms have Supplemental Disclosure Forms that specifically inquire about death. To avoid liability, it is recommended the seller disclose if a death occurred within the last three years, and let the buyer decide.[1] Some states have even gone further requiring home sellers to disclose "stigmas" attached to a property, which can include proximities to homeless shelters or whether it was scene to a violent crime.

In New York, a buyer sued the seller and the seller's realtor for failure to disclose the house's ghostly reputation. The seller even wrote about her bumps in the night with spirits for the local paper and Readers' Digest. However, many neighbors doubted the claims of the seller's spectral encounters, since the house was built in the 19th century and one of her spooks was anachronistically dressed in a Revolutionary War uniform. Although the court did not rule nondisclosure of the house's reputation as fraudulent, it did allow the buyer out of his contract and the return of his down payment. The house did eventually sell for $630,000 and several years later for $900,000.

According to a study by two business professors at Wright University, the supernatural stigma associated with houses where murder or suicide have occurred can take 50% longer to sell, and at an average of 2.4 percent less than comparable homes. Yet, a California appraiser, who specializes in diminution in value issues, says that a well publicized murder generally lowers selling price 15 to 35 percent.

Some homebuyers are not hindered by the macabre, especially if the gruesome past involves celebrities or legends. Indeed, ghosts can even be a selling point for some towns that rely on their dead inhabitants for tourist appeal. Cities like St. Augustine, New Orleans, and Hollywood all provide ghost tours of popular sighting sites. In St. Augustine, a legendary haunted house turned restaurant lures in diners with the prospect of seeing the house's former owner—a woman dressed in white who purportedly appears in mirrors and walks the second floor. Even homes that have witnessed notoriously grisly events have managed to sell. O. J. Simpson's home sold to an investment banker for about $4.7 million, and the Miami estate where Gianni Versace was murdered was auctioned for about $20 million.

Sellers should disclose grisly facts about the house, so they will not be "haunted" later. Even if not required by state law, in order to soothe the spirits of prospective buyers and avoid lawsuits, the seller should be upfront about their home's paranormal guests or ghoulish histories. In a sellers' market, ghosts tend to fade and may even disappear.