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Bad Neighbors Can Affect Appraisals

It’s true: Bad neighbors can ding home values. Appraisers even have a term for bad neighborhoods and other troublesome hyperlocal issues that can affect property values: external obsolescence.

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

The Appraisal Institute recommends that prospective homebuyer visit the street where they’re considering buying at different times over the course of several days.

A number of social networking websites allow users to share insight about neighborhoods. They include NabeWise, Nextdoor, BlockAvenue, StreetAdvisor, and Airbnb. Other sites offering data at the neighborhood level include Walk Score and PolicyMap.

Crime is an obvious issue affecting property values. But the Appraisal Institute advises that homebuyers keep an eye out for annoying pets, unkempt yards, unpleasant odors, loud music, dangerous trees and limbs, or poorly maintained exteriors. Buyers should also be aware of a property’s proximity to commercial facilities, such as power plants and funeral homes.

These and other issues can affect not only a property’s current value, but the rate of potential decline in value.

“External obsolescence” may be driven by economic or location factors. It may be temporary or permanent. But there’s often little that property owners, landlords and tenants can do about it.

Property owners who have identified neighborhood issues should speak with other neighbors and get consensus before approaching the bad neighbor together, the Appraisal Institute advises.

Sometimes a bad neighbor’s activities may be prohibited by the local municipal code, subdivision restrictions, or the health department, and can be remedied by reporting them to code enforcement or other authorities.

If all else fails, the Appraisal Institute says hiring an attorney to help resolve a problem will often cost less than the potential loss in home value.