Disclosure Laws Have Big Impact on Prices

Disclosure Laws Have Big Impact on Prices
Disclosure laws that require sellers and real estate practitioners to provide prospective buyers with information about a neighborhood, like whether it is in a flood zone or an airport noise zone, decrease property prices by thousands of dollars, according to two studies from Virginia Tech University.

The studies examined housing prices a year before disclosures laws were passed in North Carolina and a year after. Homes near the Raleigh-Durham International Airport already sold for 4 percent less than comparable homes in parts of town farther from the airport. A year after the disclosure law went into effect, prices dropped an additional 3 percent, according to Jaren Pope, assistant professor of agriculture and applied economics at Virginia Tech.

Likewise, there was no substantial price difference between comparable homes in North Carolina that were in a flood zone and those that were not until the state legislature required home owners to disclose this information. After the law passed, houses in flood zones lost an average 4 percent in market value.

Pope says similar disclosure laws have been passed nationwide, but there is no standard, so the specific tenets vary not only from state to state but also from county to county, which makes the situation more difficult for buyers and sellers.

Source: Virginia Polytechnic Institute and State University (10/16/07)