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Bad Neighbors Play Major Role in Home Values

JAN 30, 2013 11:50am ET
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The Appraisal Institute is warning current homeowners and prospective homebuyers that neighbors play a major role in a property’s overall value.

More specifically, the nation’s largest professional association of real estate appraisers said that bad neighbors can significantly reduce nearby home values because of their conduct as well as impact the rate of potential decline in prices because of their proximity.

According to the Appraisal Institute, a bad neighbor can include homeowners with annoying pets, unkempt yards, unpleasant odors, loud music, dangerous trees, or poorly maintained exteriors.

Additionally, potential homebuyers should also be aware of a property’s closeness to commercial facilities, such as power plants and funeral homes, when purchasing a house because these buildings can negatively affect a home’s current and long-term value.

“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%,” said Richard Borges II, president of the Appraisal Institute. “Homeowners should be aware of what is going on in their neighborhood and how others’ bad behaviors could affect their home’s value.”

To learn more about what is happening in a community, a homeowner or future tenant should visit a street on several days at various times, the Appraisal Institute said. According to appraisers, this is called external obsolescence—depreciation caused by external factors not on the property.

The Appraisal Institute said external obsolescence may be caused by economic or locational factors, and may be temporary or permanent, but it is not curable by the owner, landlord, or tenant.

In order to deal with troublesome neighbors, the Appraisal Institute recommends that a homeowner speak with others on their street to identify the concerning issues and try to explain the situation to the bad resident as a group.

If this method doesn’t work, the Appraisal Institute says homeowners could look up the original and updated subdivision restrictions to see if the neighbor is violating any local regulations. Furthermore, they can write to the code office of the municipality, which could lead to an investigation into the nuisance being created by the bad neighbor.

“Even though homeowners do have some recourse, it’s important for prospective homebuyers to carefully examine the neighborhood where they’re considering living,” said Borges, who just began his one-year term as the trade association’s president at the beginning of this year. “That way they can hopefully prevent any problems in the first place.”

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