Can a property's turbulent history affect its market price: Cameron McEvoy

Perhaps I have been watching a little ‘too’ much 'American Horror Story' lately.

As unrelated to Australian property investment as this show may sound, it actually formed the inspiration for writing this article today. The first season of the show is about a family who moves into a suspiciously under-priced large Los Angeles Deco-era family home.

Of course, as the series progresses the family discovers the true history of the home – several gruesome crimes, repeated stories of hauntings, the usual horror movie home truths! – and realises that the stigma attached to the house’s history is the reason why they were able to buy it so cheaply to begin with.

Later on when the family tries to re-sell the house, they are burdened with the history and struggle to even get back what they paid for it.

The house at it appears in real life on the left compared to how it appears in 'American Horror Story'

Though this is just a silly television series and a very over the top/extreme example of how a property’s history can affect values, it got me thinking about the sentiment that sellers and buyers of properties will attach to the history or superstition behind a property.

In Australian culture we actually do see mild examples on a day to day basis of where superstition can influence demand for property.

Take for example the fact that in several Asian cultures many favour apartments and houses with the number ‘8’ in them based on the belief that this number brings prosperity and fortune with it and, to a lesser extent, some western/anglo-Australian buyers showing caution toward properties numbered ‘13’ based on superstitious reasons of ‘bad luck’.

I have read on several websites and also a feature article in Australian Property Investor Magazine about a year ago, about the story of the gentleman who purchased the ‘Bodies in Barrels’ murder house, which was attached to a bank, in the otherwise sleepy South Australian town of Snowtown.

After being placed on eBay for sale – a curious sales tactic in itself – the 4-bedroom residential house behind the attached bank building (where the actual horrors took place) was eventually bulldozed to make way for a new unit development.

The bank itself was placed on auction at a reserve cost of $200,000, though achieving a sale price of only half of that, though was later resold closer to original reserve price (at $185,000) to a family who intended to owner-occupy it after some conversion and renovation.

Though I am citing an extreme and extraordinary example; it does provide some insights for us. The initial stigma attached to a property shortly after a horrific event did see its value deplete – no surprises there.

However, within just over a decade after the occurrence, the property value gradually crawled back up.

Perhaps time heals all wounds.

In this way, would-be investors with arguably a higher risk-profile than most could consider procuring heavily discounted properties where unfortunate incidents took place, employ a buy-and-hold approach for a medium-to-long term and hedge their bets that time heals wounds (and the memories) of their would-be buyers in years to come.

Personally, I consider it a somewhat macabre and bleak prospect but the professional investor in me urges me to consider the bottom-line element, and not the superstition or stigma around it.

However this alludes to a bigger problem, when considering such property types on their initial 'bargain’ merits.

From a buying perspective, there may be long-term capital gains, but what good are these gains if you cannot feasibly hold this property with tenants in place?  

Where superstition and history are really important is the occupants of a residence.

The association of tragedy, superstition, or creepiness, may be too great for some would-be tenants to handle. They may inspect the property not knowing the recent history, but within months of moving in, they are looking to leave after their first six-month lease expires.

A good example of the persistent challenges of established property stigma that results in a property being unable to function as a regular rented residence; is Crawley House.

No, not the picturesque setting for the UK series, Downton Abbey, but Crawley House aka the Monte Cristo Homestead (pictured below) in Junee, NSW.

Though it is a palatial 1885 manor fit for a large well-to-do family of that era, its tragic past changed the residence from being able to function as a home forever and has instead remained for decades as a museum, antique store, and tourist attraction.

That said, where the stories and ‘sightings’ of ghosts have closed the door to its function as a residence, it has opened other commercial opportunity doors instead.

The truth is, the safest way to proceed with any property purchase is to do your homework.

If, for example, you are buying in an area that has a significant Asian population, it is worth at least being aware of the number of the dwelling and how this number may be perceived by that target audience.

Whether you end up selling or renting this property, it could be likely that your buyer may be of an Asian background and planning for such considerations may enable your target market to broaden as a result.

More crucially though, if you suspect the asking price for a property seems to be suspiciously lower than similar others in the area/street, ask the estate agent for full disclosure of any known history of the property.

Do as much research as you can around the history of the property and any occurrences that could have implicated on the sentiment towards it. Where and if possible, ask neighbours about the property. They probably won’t know anything but it never hurts to ask.

As a separate (and seemingly unrelated) step, I would always recommend that if your offer on a property is accepted, you buy the RP Data historical report for it.

This will highlight the sales history and any occurrences of note, pertaining to the history of the property.

Things to look for would be any disclosure of violent crime occurring there, or potentially a consistent (say, over twenty years) frequency of buy-and-sell; with no single owner retaining ownership of the property for more than a year or so.

I am not suggesting the reason will be anything to do with violent history or superstition, though you could discover something perhaps more startling, a structural or physical problem with the property over time.

Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Correspondent.

'Haunted house' photo courtesy of  Sean MacEntee