Wednesday
September 17, 2014

Stigma or Superstition?

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Stigma or Superstition?

Appraisers weigh diminished value of tainted properties

For nearly a year, the sprawling Spanish-style luxury home in the elegant San Diego suburb of Rancho Santa Fe--considered prime Southern California real estate--was on the market for a cool $1.6 million.

Overnight, the 9,000-square foot mansion, with its stunning ocean and canyon views, was transformed into a death chamber when 39 cult members died in a mass suicide in March. The hilltop home became a morbid shrine attracting gawkers and tourists and is now a stigmatized property.

"When these things happen, you've got to accept the reality of the situation. Don't try and cover it up," says Randall Bell, of Bell & Associates, Laguna Niguel, Calif., who specializes in appraising properties stigmatized by crimes and other tragedies. "And don't try to sell it. Rent it out, because if it's vacant, it'll lead people to believe it's haunted."

Bell, who has appraised such homes as Nicole Brown Simpson's tony condominium in exclusive Brentwood, west of Los Angeles, says the value of a stigmatized property depends largely on the scope of the tragedy, the sales price of other tainted properties, and the amount of media attention it has received.

"First, you look at the property as if nothing happened. Then you look at other similar crimes to see the percentage discount as a result of the situation," he says. "Then you apply that discount to the property you're looking at.

"When you're measuring stigma, you have only so much data to work with, so you have to look at other property types as well," such as comparing homes with apartments, Bell adds. "It's virtually impossible to sell these properties [immediately after the crime]. The taint is too strong.

"When you have a murder inside the house, it's far worse than when it happens outside. You're going to have more of a stigma, because in some people's minds, you're going to have a haunted room."

Stigma Is His Specialty

Bell, 38, a licensed real estate broker and an appraiser for 11 years, says he decided to specialize in stigmatized properties after appraisal fees began plummeting and work dried up in California in 1993 and 1994. Since then, he has mainly assessed properties tainted by crimes, environmental contamination, construction defects, or natural disasters.

"In California the appraisal business went down like a rock. Fees that were once $12,000 are now $3,500," says Bell, an instructor at the Appraisal Institute. "I thought I'd do something other than straight appraisals because the fees were so abysmal. So I basically turned my focus to doing these kinds of appraisals."

Calculating Market Value

Armed with research that roughly calculates declines in market value, Bell appraised Nicole Simpson's 3,400-square-foot home, which she bought for $652,000 in 1994. More than two years after her murder, Bell says, the four-bedroom, three-bath condominium with a rooftop patio appraised and sold for a "discounted price" he declines to reveal.

Then there was the property where the actress Sharon Tate was killed by Charles Manson's followers, a crime so infamous it seized media attention like few others. Tate's bungalow off Benedict Canyon north of Beverly Hills was knocked down and a new home built; more than two decades later it sold at no discount, says Bell, who appraised the home that went up after the bungalow was demolished.

In Huntington Beach, Calif., a home in which a wife fatally shot her husband in a notorious local case sold for about $25,000 less than what comparable homes were worth, says Bell, who also appraised that property.

Usually, he says, there's about a "15 percent to 25 percent diminution in value for two to three years after the fact. Over time the discount evaporates, but it takes 10-25 years [for the stigma] to go away entirely."

As for the Milwaukee apartment building in which Jeffrey Dahmer lived and committed atrocities, Bell says he "didn't appraise the building, but the owner sent me pictures."

"Dahmer's crimes were so horrific that not only the building was stigmatized but also the neighborhood, and that's very unusual," he says. "Occupancy went from 80 percent to 20 percent, as people in adjoining buildings wanted to leave the neighborhood."

A short time later, he says, a redevelopment agency bought the apartment building for $325,000--35 percent above market value--and demolished it.

"You try to ascertain from other sales some sort of discount that the market is recognizing for properties that are so stigmatized," says George Ryon, of Manhattan Beach, Calif., a self-employed appraiser who assessed the value of the $4 million Menendez family home after brothers Erik and Lyle killed their parents. "The incidence of these sales is not high, and that creates the problem of what is a proper discount.

"There is no perfect answer," adds Ryon, who along with Bell specializes in stigmatized properties. "You have to subjectively measure how the public feels about the kids' killing their parents, as opposed to a home invasion robbery in which two people got killed. No matter how good your analysis, you might come up with the wrong number. It's your best estimate."

Ryon says that when the Menendez house did sell two years after the killings, it was for far less than the appraised value.

"The buyer wouldn't pay the level of my appraisal," he says, adding that he had to "appraise it down twice because there were very few bona fide offers, and that was one of the indicators that the value was less than I thought it should have been. The buses are still lined up, stopping in front of that house today."

Whereas most appraisers are concerned primarily with market factors, those who deal with tainted properties are forced to consider public reaction to the stigmatizing event as well.

"I take each one as it comes along and try to measure how the public reacts to it," Ryon says. "I'm interpreting market value, and that is, what is somebody else going to pay for the property?"

Tips for Selling Stigmatized Properties

Randall Bell, owner of Bell & Associates, an appraisal and consulting firm in Laguna Niguel, Calif., offers a few tips for real estate professionals trying to sell stigmatized properties:

  • Don't try to sell the property right away. Rent it out for two to four years before you put it on the market. The fact that there are renters in there takes the stigma away.
  • Make cosmetic changes to the property so that it looks different from the way it did when the crime occurred. Paint the outside another color, plant or chop down trees, or build or tear down a wall.
  • Disclose the crime, no matter how many years have passed, to avoid liability claims.
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