How much does a bad neighbor cost in the sale of a home?

A bad neighbor is now classified under the term, external obsolescence, along with other challenges like, not maintaining the property, unruly pets, bad smells, loud music, etc.  We have all heard those horror stories about the person on the block that is bringing the entire subdivision’s value down.

External obsolescence is something outside the property that is deemed undesirable and not curable, meaning usually permanent, but it can also be a something temporary.  Some examples would be highways, power lines, factories, or railroads.  I remember my grandmother’s home was a half mile from Chicago’s Midway Airport.  Anytime a plain was taking off or landing, you had to stop your conversations (in person or on the phone), and put the TV louder.  Even as a child, I found myself wondering why anyone would want to live that close to the airport, except for, never needing to take a taxi there or ask someone to drive you.  I didn’t realize back then that something like that would affect the value of the house when she sold it.

Appraisers are taught to take things like this into consideration when determining value.  Now they are encouraged to add “bad neighbors” as part of that category.  Richard L. Borges II, President of the Appraisal Institute MAI, SRA said, “I’ve seen many situations where external factors, such as living near a bad neighbor, can lower home values by more than 5 to 10 percent.  Homeowners should be aware of what is going on in their neighborhood and how others’ bad behaviors could affect their home’s value.”

The Institute recommends to walk the neighborhood you are thinking of buying in multiple times to get a good feel of who is in the area and if there is a potential issue that would cause you think twice.  

If you are a seller and don’t want it to affect the reactions of potential buyers, you could research to see if the neighbor is in violation of any municipal responsibilities of property ownership.  If so you could gather additional neighbors and address the issue, or even hire an attorney, which would typically cost less than the value it is affecting.