HOUSE TO HOME

3 min read

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Nov 2016

How Your Neighbors Affect Your Property Value

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WHAT YOU'LL LEARN

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find out what factors affect the value of your home

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learn when to steer clear of purchasing a home

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WHAT YOU'LL LEARN

Checkmark

find out what factors affect the value of your home

Checkmark

learn when to steer clear of purchasing a home

When you start your home buying journey, one sometimes overlooked tip to consider is that you should be cautious when choosing neighbors in regards to future property values. Now, although you can’t actually choose a neighbor when you already live in a home, you can reconsider buying a house because of existing neighbors; that’s what this tip is all about. A house may look great and have all the features you want, but if it’s the only house on the block that’s in great condition, or there are neighbors that have unkempt lawns, or other visual disturbances, then the property value of that home could decrease after you purchase it, making it a not-so-great investment.

A decreasing property value can make selling your home in the future more difficult or selling for less than what you purchased it for, causing you to lose money in the long run.

According to the Appraisal Institute, a bad neighbor could potentially reduce your home’s value up to 10%. This sort of effect is referred to as external obsolescence; where external factors have an affect on your home’s value, instead of factors on your property that can cause a decrease.

What you should look out for

There are signs to look out for that can determine the direction of which the home’s value will head in the future. Although external obsolescence can have a negative impact on your home, it can be temporary things, so it’s important to do a little research.

Physical factors

This point can seem obvious, but sometimes it’s overlooked because you may consider it to be an easy fix. For example, a neighbor’s unkempt lawn can have a negative impact on your home. The simple solution is to clean it up, add some easy curb appeal, etc. This could be a temporary factor in reducing your home’s value, but if this neighbor has a regularly unkempt lawn, then it may not be so temporary. Some lawns can be in complete disrepair, and the closer these properties are to your home, the more severe of an impact it has on your home’s value. For whatever reason the neighbor is unable to clean up their property, whether they simply don’t have the time or finances, the risk is that it could decrease your home’s value. The more neighbors you have that have the same problem, the more of an impact it will all have on surrounding homes and your property, ultimately affecting property values of an entire neighborhood. Thankfully, many neighborhoods have HOA guidelines that each homeowner has to follow. This can guide homeowners in picking an exterior door color to allowing only a certain number of cars to be kept on your property. You can report an irresponsible neighbor to the local HOA and they’ll handle the situation from there.

Financial factors

If a neighbor has severe financial issues, then an unkempt lawn may be the least cause of concern. A big impact on your home value would be a nearby foreclosure. A study by the New York Times saw a 1.3% drop in home values of homes that were within 300-500 feet of a foreclosed home. The impact can be even more significant if the foreclosed home is also in physical disrepair. If you live in a condo for example, neighbors who don’t pay maintenance fees can have an impact on your unit’s value and the rest of the building because of a lack of desirability of living there by potential homebuyers. Although a foreclosure could have a severe impact on home values, it doesn’t necessarily mean it’s permanent. It’s possible to see things turnaround when you ride it out and wait until the bank or lender sells the home to a new homebuyer.

Ultimately, unsightly yards and foreclosures affect the resale value of your home because they bring down the average home values in the neighborhood.

Legal factors

It’s important to do research of criminal neighbors as well, because a registered criminal or someone engaging in criminal activity could potentially put a dent in your home’s value by 10%. Most communities share lists of homeowners with criminal backgrounds, which you can have access to when looking into different neighborhoods. Other factors aside from the ones listed above could also potentially impact your purchase choices or selling abilities, such as neighbor’s behavior. For example, if a neighbor is disruptive and/or throws loud parties all the time, this could have a negative impact on your neighborhood. There’s no real good way of knowing about these factors when looking for a home though, since you don’t live there yet. But you can ask the current homeowners of the house about neighbors, and although they may likely outline the positives, you can gauge how positive you really see those factors being off your own past experiences or opinion.

Frequently Asked Questions

Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.

How much can a neighbor lower my home's value?
According to the Appraisal Institute, a problematic neighbor could potentially reduce a nearby home's value by up to 10%, depending on the severity and nature of the issue. Factors like a consistently unkempt yard, an active foreclosure on an adjacent property, or registered criminal activity in the immediate vicinity have each been associated with measurable declines in surrounding property values. The impact tends to be more significant the closer the neighboring property is to yours.
What is external obsolescence in real estate?
External obsolescence refers to a reduction in a property's value caused by factors outside the property itself. Unlike interior condition issues or deferred maintenance, external obsolescence comes from outside influences such as a neighbor's poorly maintained yard, a nearby foreclosure, increased traffic, or changes in the surrounding neighborhood. It is one of the three types of depreciation that a real estate appraiser may consider when evaluating a home's value.
Can a neighbor's unkempt yard lower my property value?
Yes, it can, particularly if the issue is persistent rather than temporary. A single overgrown lawn during a busy season may have little impact, but a neighbor who consistently fails to maintain their property can drag down the perceived desirability of the surrounding homes. The closer the property is to yours, the greater the potential effect. In neighborhoods with an active homeowners association, you may be able to report the issue and have it addressed through the HOA's enforcement process.
How does a nearby foreclosure affect my home's value?
Research has shown that homes within 300 to 500 feet of a foreclosed property can see a measurable drop in value, sometimes in the range of 1% or more per nearby foreclosure, depending on market conditions at the time. The impact can be compounded if the foreclosed home falls into physical disrepair while it sits vacant. That said, foreclosures are often temporary. Once the lender sells the home to a new buyer who maintains the property, the drag on surrounding values typically eases over time.
Does an HOA protect my home value from bad neighbors?
A homeowners association can help by enforcing community standards related to property maintenance, exterior appearance, and certain types of use. If a neighbor violates HOA guidelines, you can file a complaint and the association is generally responsible for following up. That said, HOA protections vary widely depending on the organization and the specific rules in place. Not all neighborhoods have an HOA, and even those that do may have limited enforcement resources. Checking whether a neighborhood has an active HOA and reviewing its guidelines before purchasing is a worthwhile step for homebuyers concerned about maintaining property values.
What should I look for in a neighborhood before buying a home?
Before making an offer, it is worth spending time in the neighborhood at different times of day to observe the overall condition of surrounding properties. Look at the upkeep of nearby yards and exteriors, check for any properties that appear vacant or in disrepair, and research whether there have been any recent foreclosures in the immediate area. You can also ask the current owners about their neighbors and review any available HOA documentation. In addition to neighbor-related factors, consider proximity to schools, commute routes, and local amenities, all of which can also influence long-term property values in markets like Virginia Beach, Charlotte, Raleigh, and Atlanta.
Can I do anything if a neighbor is hurting my property value?
The options available to you depend on the nature of the issue. If the neighbor is violating HOA rules or local ordinances, you may be able to file a formal complaint with the HOA or your local municipality. For issues like severely overgrown vegetation or unsafe structures, local code enforcement agencies may have jurisdiction. For neighbor behavior that is disruptive but not necessarily illegal, the options are more limited. Documenting the issue and speaking with a real estate professional in your area can help you understand how the situation may affect your home's value and what, if any, recourse is available.
How do neighbors affect a home appraisal?
A licensed appraiser evaluating your home will typically consider the condition and values of comparable homes in the immediate area, known as comps. If nearby properties are in poor condition, have recently sold at lower prices due to distress, or show signs of neglect, that can influence the appraiser's assessment of your home's value through the principle of external obsolescence. This is one reason why neighborhood conditions matter not just when you buy, but also when you refinance or eventually sell. If you have questions about how your neighborhood may be affecting your home's value, speaking with a mortgage banker is a good starting point.

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The views and statements expressed are deemed reliable as of the publish date indicated and may not be accurate or reliable at any future date. The views and statements provided are those of the author. Discussions regarding any financial information provided are not intended as individual recommendations and do not reflect the views or advice of Atlantic Bay Mortgage Group, L.L.C. The views expressed are subject to change at any time in response to changing circumstances in the market. *For refinances, the total finance charges may be higher over the life of the loan. Atlantic Bay Mortgage Group, L.L.C. disclaims any obligation to publicly update or revise any views expressed or information given. Loan programs may change at any time with or without notice. Information deemed reliable but not guaranteed. All loans subject to income verification, credit approval and property appraisal. Not a commitment to lend. Atlantic Bay Mortgage Group, L.L.C. NMLS #72043 (nmlsconsumeraccess.org) is an Equal Housing Lender. Located at 600 Lynnhaven Parkway Suite 100 Virginia Beach, VA 23452.