How Neighbors Impact the Value of Your Home

The value of a neighborhood rises and falls as a collective.

You're a homeowner, basking in the warm glow of climbing property values. You take great care of your home, making sure it's neat as a pin and well-maintained. The only concern you have is whether the condition of your neighbor's property has any impact on the value of your house. In short, the answer is yes. A neighbor's property can impact the value of your home. Here are some of the ways it can happen.

Visual disturbances

You know that house; the eyesore with the overgrown lawn, peeling paint, broken windows, old cars, and other junk in the driveway and yard. That's the house people tend to notice when they drive by. And it's sure as rain a house home appraisers see as they try to determine the value of your home.

According to the Appraisal Institute, as an appraiser determines the value of a home, they must keep surrounding properties in mind. When one is a hot mess, it decreases the value of the houses around it --- often by 5% to 10%. They refer to this as "external obsolescence," depreciation caused by external factors, not on the property. In other words, it's not your fault as a homeowner, but still, it impacts the value of your house.

Legal issues

Before everyone had the internet on their phones, it was tough to know if the guy living next door was a sexual predator or if the woman a few houses down spent years in prison for financial crimes. Today, anyone interested in moving into your neighborhood has access to tons of information about your neighbors.

Say a person on the sex offender registry moves in next door. On average, you can expect the value of your home to drop by around 12%. Even if they move in on the same block, your home value will likely drop by around 4%.

You can't control what your neighbors do once you're in a home, but you can check who lives in surrounding homes before offering to buy a property yourself.

Financial issues

Another thing you can't control is the impact of foreclosed properties on the value of your home. Simply being located within a quarter-mile of a foreclosed home can decrease the value of your property by 4%. So, if your home would be worth $300,000 in any other neighborhood, its value is likely closer to $288,000 if there's a foreclosure nearby.

Party central

At some point, loud neighbors become part of the landscape, like a highway in your backyard or construction site in your neighborhood. They're inescapable and can decrease the value of your property by 1% to 10%.

Loud or dangerous animals

If your neighbor leaves their dogs outside to wail and bark throughout the day, it impacts the value of your home. And if a neighbor has a dangerous breed of dog, you can expect the value of your home to decrease. Put yourself in the shoes of a potential home buyer. Would you be willing to take a mortgage on a house, only to be nervous about spending time outdoors?

What you can do

You obviously cannot control whether a neighbor collects junk in their front yard, pays their bills, or adopts a dangerous breed of dog. You can, however, try to be the kind of neighbor this person knows they can trust. Here are some of your options if you're concerned about how a neighbor's property impacts your house's value.

Check in on them. It's possible the yard is overgrown or paint is peeling because the homeowner is too sick or old to take care of maintenance. If that's the case, you (and other neighbors) might offer to help lighten the load by helping. If the neighbor in question is a senior citizen, call your closest Area Agency on Aging to learn if any programs are available to help a senior make repairs to their home.

Involve your homeowners association (HOA). If you live in an HOA-managed neighborhood, turn to them for assistance. If a single property is hurting the value of surrounding homes, it's in the HOA's best interest to become involved.

The old adage about catching more bees with honey than with vinegar rings true for neighbors. Even if you believe your neighbor's house is devaluing the homes around it, the wisest course of action is to broach the subject carefully and with compassion.