Later on the boys are playing around in the kitchen and the toaster shake rattles and rolls like it's been filled with evil pink slime. The kitchen gets possessed - cabinets slamming, tea kettle whistling, water running on its own.
The kids take things into their own hands and head over to the historical society to find out about their house. Mr. Witherspoon is working there and he tells them the tale using an old timey pop-up book. It begins back when pilgrims lived in Lucifer Falls. They all were good people except William Hanover, who scared all the children. He was in love with the widow Marion, but Marion rejected him. So he sold his soul for a magic cloak, stole Marion's son, Jonathan, and blew up the house. Ghost Marion can't get in and Ghost Jonathan can't get out.
The trio arrives home and looks for their mom and dad. While the lights are out, their father tries to scare them with a cheap gorilla mask. He shows them all the new toys he purchased for their Gag City store. Dad is laughing as he shoot balls as his children, and the ghosts are equally amused. When father claims ghosts do not exist, that's when they begin to run amuck.
They decide to stay in the house, but camp out in the living room for the night. I don't see how camping out in the living room is going to save them from ghost attacks, but hey, this is a Disney movie, after all. The mother wakes up in the middle of the night and goes into the kitchen to eat 64 slices of American cheese. Next widow Marion is rapping at her window, and is invited in for coffee. Marion tells the mother that she can't come in as long as Mr Boogedy is in the house and she hasn't seen her son in 300 years.
The family is so concerned, they decide to get rid of Boogedy's cloak. They climb up the stairs with sophisticated ghost-busting equipment like flyswatters and brooms. The two boys split from the team and head to the basement. The rest of the team ventures forward, but find nothing upstairs.
The basement lights aren't working. Aurie is heard screaming, "STOP! STOP!" as he wrestles with the teddy bear thief. The thief is Jonathan, and only borrowed the teddy bear because he's so lonesome. There's not much more time for small talk, the sounds of Mr. Boogedy's deep Vader-like breathing is drawing closer.
The family convenes in the living room, just in time for Boogedy to show himself during a barrage of fireplace explosions and lights flickering.
They hide themselves behind the boxes of Gag City inventory. Boogedy uses electric finger shots to shock them. Corwin tries to attack Boogedy with the vacuum cleaner, but Boogedy uses his magic to turn the tables on Corwin! The vacuum sucks everything nearby, and Aurie bolts behind Mr Boogedy. Mr Boogedy gets stuck in the vacuum cleaner. I always thought those rumors about guys getting stuck in vacuum cleaners were just urban legend. Alas, poor Mr. Boogedy lost his cloak in the cleaner and disappears without his magic.
The vacuum pops up holding the clock. With a toss in the air and a "Boogedy Boogedy boo," the cloak is gone, and the house is no longer haunted. Jonathan and Marion are reunited and their souls can finally rest in peace.