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An Examination of Stigmatized Housing in Ohio by James E. Larsen, September, 2000

This study examines the disclosure practices of Ohio real estate licensees when dealing with a stigmatized house and tests whether there are significant market effects associated with stigmatized housing in Ohio. Survey information about stigmatized residential transactions, obtained from real estate licensees, is analyzed. Ohio is an interesting environment in which to test agent disclosure behavior because, unlike many other states, licensees are not protected by statute from liability for failing to disclose stigma, nor are they required by statute to disclose stigma. However, there is case law that puts licensees in jeopardy for failing to disclose. The survey results indicate that disclosure practices vary widely among agents. The data suggests multi-level communication difficulties. In some cases, listing agents fail to learn of the stigma because sellers withhold the information. The selling agent's situation is more problematic. In may cases, even though the listing agent knew of the stigma the selling agent did not learn of it until after the purchase contract was signed. A straightforward way to solve this problem is to include stigma on the "Residential Property Disclosure Form" that all sellers are required by law to provide to prospects. Of course, if there are no market effects associated with stigmatized properties, disclosure is less important, but the data indicates they are present. While the stigmatized houses in our sample were listed at the same price as comparable non-stigmatized houses, they sold for an average of 2.4 percent less than non-stigmatized houses and were on the market about 50 percent longer than the average time on market for comparable properties.

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