When Ellen Lin and Derek Kwok discovered a vicious murder had been committed in the North Ryde house they were about to buy, they did not want to go through with the deal.
Horrified to learn that Sef Gonzales had brutally murdered his sister and parents in their family home several years earlier, in 2004 the couple demanded and recovered their deposit from the real estate agent trying to sell the house. The house was eventually sold to someone else for a bargain price.
State laws have since been changed to force real estate agents to reveal information about a property that could have a substantial effect on its value. But new research shows it's not only murder houses that get the cold shoulder from buyers. Nearby properties also fall in value, say Adrian Lee and Anastasia Klimova, researchers at the University of Technology, Sydney (UTS).
They have been looking at the impact of murders on house prices in notoriously property-obsessed Sydney.
"We know that a murder will affect the house in which it occurs but no one had done any research on how it affects property prices within the local vicinity," says Dr Lee, a postdoctoral research fellow in the UTS Business School.
Doctors Lee and Klimova spent months trawling through court reports about murders and revisiting media accounts of some of the more notorious killings in Sydney.
The murder of the Gonzales family in 2001 stood out not only for its sensational nature but because the real estate agent revealed nothing to potential buyers about the house's history.
The changes to the law that followed that case did not require real estate agents to provide information about murders that had occurred near a property that is for sale. But that kind of information could still upset buyers, says Dr Lee.
"There is some stigma attached to the area [where a murder has been committed]. It tends to be a psychological effect but it disappears over time," he says.
"We found that house prices fall by 3.9 per cent for homes within 320 metres of a murder, with less of a drop in the second year after a murder. But rents aren't affected at all."
Within 160 metres it doesn't seem to matter how close a property is to a house where a murder has been committed: prices fall by the same amount. Intense and prolonged media coverage doesn't seem to matter either, say the researchers.
They were somewhat surprised that the negative impact on prices didn't last longer. "I think people stop reading the news after a while and then, it's business as usual," says Dr Lee.
That was borne out recently when a Rozelle house where two brothers were stabbed to death five years ago sold for more than $200,000 above the reserve. The real estate agent said that of the 10 serious buyers only three backed out when they heard the house's history.
Dr Lee has now turned his attention to the impact brothels have on property prices.
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