NAR: Marijuana operations have little effect on real estate

Residential properties typically had no change in value as a result of a nearby marijuana dispensary and marijuana "grow houses" were often not hard to sell, according to a recent report by the National Association of Realtors.

Although only a small share of real estate agents had direct experience with residential or commercial properties used for marijuana operations, those who did said they usually did not have any major effect on property values or the ease of selling a home. However, about one-third of respondents said rental property managers had amended their rules to restrict growing or smoking marijuana, and some respondents said there was an increase in the perception of crime due to marijuana-related businesses.

"Members in states where marijuana has been legalized to some extent have been asking us to conduct this kind of research because it is directly affecting their business," said Jessica Lautz, NAR's director of behavioral and demographic trends. "Whether it is influencing property values, the number of all-cash purchases, or demand for various types of commercial properties, it is clear that this billion dollar industry is making an impact."

The report, completed in October 2018, received 6,987 responses from residential NAR members and 949 responses from commercial members in states where marijuana has been legalized for medical use or for both medical and recreational use. At the time of the report, 22 states had legalized medical marijuana while nine states had legalized it for recreational use as well. In the November elections, Missouri and Utah legalized medical marijuana while Michigan became the 10th state to legalize recreational marijuana.

GROW HOUSES

About three-quarters of respondents said they had never tried to sell a grow house. Five to 6 percent said they had sold a grow house, while 1 to 2 percent said they had tried but not been successful.

The majority of respondents, including 73 percent of those in prescription-only states, said it had not been difficult to sell a grow house. One-third of respondents in states where recreational marijuana was legal said it was hard to sell a grow house, as did 27 percent of prescription-only respondents.

Between 71 and 75 percent of respondents said they disclosed that a property had been used as a grow house. Between 11 and 18 percent said they did not disclose previous marijuana grow operations.

About nine in 10 respondents said they had no title issues selling a grow house. Others reported that they could not find a title company or had to use a specialized title company for the transaction.

In properties with homeowners associations, just under two-thirds of respondents said there were usually rules and restrictions on growing or smoking marijuana. Between 22 and 25 percent said there were restrictions on smoking in common areas, while 16 percent said homeowners associations usually had restrictions on growing marijuana in common areas. Six percent said they had worked with homeowners associations that allowed growing or smoking marijuana, either in a common area or in the home.

VALUES

More than three-quarters of respondents—78 percent of those in prescription-only states and 76 percent of those in states where recreational marijuana is legal— said there had been no change in residential property values near marijuana dispensaries. Ten percent said they had decreased slightly, while 2 to 4 percent said they had decreased substantially. Three percent said the proximity to a dispensary increased property values substantially, while 6 to 7 percent said values increased slightly.

Similarly, between 66 and 71 percent of commercial respondents said there had been no change to commercial property values near a marijuana dispensary. Twelve to 13 percent said values were up slightly, while 7 to 8 percent said they were up substantially. Nine percent said a dispensary had resulted in a slight decrease in commercial property value.

Commercial property near land used to grow marijuana was more likely to have an increase in value. Eighteen percent of respondents in prescription-only states said commercial property values near these lands were up slightly, while 4 percent said they were up substantially. In states with recreational marijuana, 15 percent said commercial values near marijuana growing lands were up slightly and 13 percent said they were up substantially.

LEASES

Just over one-third of respondents—36 percent of those in prescription-only states and 32 percent of those in recreational states—said residential property managers had addendums on their leases to restrict the growing or smoking of marijuana on rental properties. Among commercial respondents, 20 to 27 percent said their leases had additional provisions to restrict the growth, storage, or sale of marijuana.

Among residential respondents, 18 percent said it was difficult to lease a property after the growth or use of marijuana because the odor was difficult to remove. Between 3 and 7 percent said the growth or use of marijuana led to moisture issues.

Tenants were more likely to pay utilities if a landlord allowed marijuana to be grown on the premises. Forty-one percent of respondents in prescription-only states and 36 percent of those in states with recreational marijuana said this arrangement was common.

Most respondents did not know if a self-contained box or machine was required when a landlord permitted a tenant to grow marijuana. Between 6 and 9 percent said this accessory was needed, while 3 percent said it was not.

Between seven and eight out of 10 commercial respondents said they were not leasing to marijuana-related businesses. Seventeen percent of those in prescription-only states were doing so, along with 6 percent of those in states with legal recreational marijuana.

About three in 10 commercial respondents said some tenants did not want to be near a marijuana dispensary. Roughly two in 10 said there had been no change in tenant preferences.

Asked about the concerns of leasing to a marijuana business, commercial respondents were most likely to cite the smell (28 to 34 percent) and the potential for the theft of cash from the property (22 to 29 percent). Sixteen percent were concerned with potential moisture issues, while 20 percent of those in states with recreational marijuana were worried about fire hazards.

COMMERCIAL

Just under half of commercial respondents said the marijuana industry had not affected commercial industry. In prescription-only states, 34 percent said there was an increased demand for warehouses while 31 percent said demand for storefronts had gone up and 18 percent said there was more demand for land.

Among respondents in states with recreational marijuana, 27 percent said there was a higher demand for warehouses, 17 percent said more people wanted land, and 14 percent said demand for storefronts was higher.

CRIME

In states where medical marijuana was legal, 39 percent of commercial respondents said there had been no change in the perception of crime near dispensaries while 16 percent said there was an increased perception of crime. In states with recreational marijuana, 31 percent of commercial respondents said there was no change in crime perceptions while 18 percent said there was an increased perception of crime.

Forty-three percent of prescription-only commercial respondents said there had been no actual change in crime near dispensaries, while 7 percent said crime was up. Twenty-eight percent of commercial respondents in states with recreational marijuana said there was no change in crime near dispensaries, with 8 percent saying crime was up.

CASH

The report also sought to determine if the marijuana industry had resulted in more all-cash transactions which tightened the availability of homes for sale. Only 1 percent of respondents said the industry was the sole reason for more all-cash purchases. Ten to 14 percent said all-cash transactions had tightened the inventory of homes, but that the marijuana industry was just one reason for this trend.

Residential respondents were split on whether landlords were willing to take the proceeds from marijuana sales as a rent payment. Twenty-nine percent of those in prescription-only states said landlords would accept cash, while 35 percent said they would not – including 12 percent who said landlords were unwilling to accept cash from an activity prohibited under federal law.

Among respondents from states where recreational marijuana is legal, 21 percent said landlords would take cash and 39 percent said they would not. Ten percent said most landlords were unwilling to accept cash from marijuana proceeds due to legal concerns.

Forty percent of commercial respondents in prescription-only states said landlords were unwilling to accept cash for rent, with 17 percent saying this was due to legal concerns. Thirty-eight percent of those in states with recreational marijuana said most landlords were unwilling to accept cash for rent, with 16 percent citing legal concerns. Twenty-eight percent said landlords would be willing to take cash from marijuana proceeds.