Unfortunately, a death or suicide usually has a negative affect on a property's price. Let's review how much of a negative impact a death on premises may have. Much of the negative price impact depends on the kind of death in the property and the type of neighborhood it is in.
Buying A Property Prudently
Buying a property is a very emotional experience. In this current competitive environment where inventory is low and demand is strong, it's often a good idea to write a letter to help ingratiate yourself to the seller.
Some people resort to buying fixer uppers to get a deal. While others may look to buy property in suboptimal locations to fit their budget. I highly encourage everyone to follow my 30/30/3 rule for home buying. It will save you a lot of stress down the road.
Whether you are a buyer or a seller, know that a death or suicide in the property or on the grounds can reduce its fair market value.
In some Asian cultures, buying a property that had a death or suicide is a complete non-starter. Some people wouldn't even takeover the property even if it was given for free.
As for me, even with a 20%+ discount to fair market value, I would never buy a home that experienced a tragic death. Call it superstition, but I would always wonder whether their ghosts would haunt us because we had taken over their home. Maybe the house is cursed and would consume all of us in the future as well with a new fire.
Exceptions To A Death On Property
The only way I would ever consider buying a property with such a tragedy, even at a steep discount is if it was for a rental, a REIT investment, or a real estate crowdfunding investment where I didn't have to live.
In San Francisco, you have to disclose if there has been a death on the property within the past three years. Other cities and counties have different disclosure laws. Find out what they are and ask questions if you are the buyer. Because when you turn around to sell the property one day, you will be faced with similar obstacles.
In the end, I've personally decided that even if the property was free I wouldn't be willing to own a home that had a death. It would be like owning a dog that mauled to death three children. The constant association with such a tragedy would be too difficult to bear.
How Does Death Affect Property Price
Based on my research, it seems like the average discount to market for a tragic death on the property is somewhere between 15% – 25% in America. Tragic deaths include: homicide, suicide, death by fire, death by electrocution, death by falling.
For nontragic deaths, the discount is anywhere from 0% – 10%. Nontragic death is considered death by a natural cause e.g. old age, organ failure, disease.
If you are a home buyer, let me offer up a guide to how much of a discount you should argue for during negotiations if you are OK with buying a property that experienced a death. It's always good to anchor low in the beginning and move towards the middle.
Here are the other key factors after death or suicide on a property that may affect a property's price:
- Time when death or suicide occurred (the longer ago, the better)
- Whether the property will be purchased as a primary residence or rental (buyers of a rental aren't as concerned),
- The way in which the property is bought e.g. 1031 exchange
As a seller, these discounts are also good to know in order to manage your expectations. You don't want to price your house at fair market value and hurt yourself because it sits on the market for months. T
he longer your property sits on the market, the larger the discount over time because buyers will start wondering what's wrong with the property beyond the death scenario. All sorts of bad things start popping into buyer's heads.
Positive Take On A Death Or Suicide On Property
There is one positive death scenario to consider that may increase the value of the house. If an owner dies of a natural, peaceful death at a very late age, a buyer may see the house as having a wonderful spirit. As a result, the house may be perceived as a life-giver.
For example, let's say the owner died in the house at age 100. Given the median life expectancy is only about 80-82 in America, a house that allowed someone to live 25% longer than the median life expectancy could be seen as having wonderful feng shui or life-giving powers. Many cultures believe in giving powers of a fantastic home, and would be willing to pay a premium.
Since we're on the subject of death, please consider getting life insurance if you have dependents and a lot of debt. PolicyGenius is the best way to get affordable term life insurance quotes. Simply apply on PolicyGenius and let qualified, pre-screened life insurance companies compete for your business.
The pandemic has taught us more than ever that life is precious. If you have a mortgage and/or kids, getting life insurance is a must. Further, you should shop around for life insurance to get the best rates.
A death or suicide in a house is a terrible thing. Before you buy a house, it's best to ask what happened to the previous owner. In many states, by law, a death needs to be disclosed if it has occurred within three years of the sale.
Recommendation For Real Estate Investors
For those of you who are real estate investors, I strongly encourage you to simplify life and invest in real estate crowdsourced investments instead. Platforms such as Fundrise as made it easy to invest in lower valuation, higher yielding properties all around the country. They carefully vet all their deals and let less than 5% of them make it into their eREITs.
You're not really long real estate until you own more than one property. Get neutral real estate by owning your primary residence. Then invest in real estate through a diversified eREIT and a real estate ETF.
If you are bullish on the demographic shift towards lower-cost and less densely populated areas of the country, check out CrowdStreet. CrowdStreet focuses on individual commercial real estate opportunities in 18-hour cities.
I've personally invested $810,000 in real estate crowdfunding to buy heartland real estate. I sold my San Francisco rental property in 2017 and wanted to earn income passively. So far so good.
Both platforms are free to sign up and explore. The housing market should stay strong for years to come thanks to low rates, strong income growth, and a very supportive government.