Bad neighbors and good neighbors, yes, we’ve all got them in our lives! But can our bad neighbors actually have a negative effect on our property value? Yes, bad neighbors can and do affect your property value.
But to what degree? Can a bad neighbor with an unsightly yard decrease your property value by 10%, 20% or more? Can a bad neighbor change into a good neighbor? Well, it depends. Here are a few points to ponder before determining if your neighbor has decreased your property value.
A bad neighbor can often be categorized as a neighbor who doesn’t maintain the exterior of their property in a way that matches that of the surrounding properties. A bad neighbor can also be a neighbor who may have built a much lower quality home that looks dissimilar to the surrounding properties. Or a bad neighbor simply may be a property such as a cemetery/graveyard.
All of the preceding bad neighbor examples can contribute to a decrease in your property value, but the amount of decrease often depends on the buyer.
The decrease of your property value due to any detrimental external factors is called external obsolescence. To determine the amount of the external obsolescence caused by a bad neighbor you should compare the value of the property with and without a bad neighbor.
Here is a really simplified way of looking at it.
Picture yourself as a potential buyer for your home. How much would you be willing to pay for your home knowing that there were no bad neighbors within a close proximity? Next, how much would you be willing to pay for your home fully knowing that there really exists a bad neighbor property nearby?
What are the differences in your two potential purchase offers? Did you automatically deduct 10 percent, more or less from the bad neighbor property offer price? Or was the amount you deducted based on the type of bad neighbor? For example, would an unmaintained property nearby cause you to offer a much lower price than a lower quality home nearby? Or would you offer a lower price for the property due to a nearby cemetery?
In reality, I found that some people will absolutely not consider living near a cemetery, whereas others said they preferred the peace and quiet of having a cemetery nearby.
My husband recently made a good point regarding cemeteries. He stated that a quiet, small, older cemetery would be a peaceful neighbor, whereas a busy, large, crowded cemetery could create noise and a nuisance to nearby properties.
You see how the decrease in property value can vary? The decrease, if any, oftentimes depends on the potential buyer and their actual taste.
So many questions, but the point that I want to make and share is that not everyone will arrive at the same decrease in value based on everyone’s likes, dislikes and tolerance to bad neighbors. To compare, an unsightly unmaintained property may simply bother some home buyers more than others and is typically curable (fixable) if the neighbor decides to fix up their place.
On the other hand, the lower quality home and the cemetery bad neighbor examples may result in a larger decrease of property value due to the fact that they are less curable (in other words, less likely to cure or fix).
An appraiser will use historical data that he or she has obtained from past appraisals, closed sales and listings to determine decreases in property values based on bad neighbors. In addition, the curability or lack of curability also contributes and is considered when arriving at the amount of external obsolescence (decrease in value) taken on a property.
An appraisal report will typically contain and identify any external obsolescence taken from a property’s value and state why it was taken.
On a positive note, having a good neighbor can actually enhance or increase your property value in much the same way as the bad neighbor example. A good neighbor example might be a neighbor who exhibits great pride of ownership in their home simply by keeping it well maintained inside and out when compared with neighboring properties.
Have you had a bad neighbor situation that you think has affected your property’s value? What has made your neighbor a bad neighbor? How much do you think the bad neighbor has decreased your property value? Have you had a bad neighbor property that turned into a good neighbor property?