The opening line of a recent article, Neighbors’ Effect on Appraisals, appearing in The NY Times Real Estate section says “You may be able to ignore the knee-high grass in your neighbor’s yard, but a home appraiser won’t.”
Any factor outside the boundaries of a subject property, whether that factor be noise, pollution, unkempt neighboring properties, or the state of the economy, can affect the value of that subject property.
External obsolescence, defined.
The appraisal industry calls this phenomenon “external obsolescence”. This is a form of depreciation, a decline in value, caused by factors off the property and beyond the homeowner’s control.
Richard L. Borges II, the president of the Appraisal Institute, was quoted as saying that “Neighborhood nuisances like an overgrown yard or a persistent odor could in some cases bring down the value of adjacent homes by 5 to 10 percent”.
In recent years the dramatic decline in the economy and property values were a form of external obsolescence that appraisers had not had to address in a very long time. The economic situation, outside the property owner’s control, was negatively impacting the value of their property, severely in many areas across the country.
What is, and is not, “acceptable” varies by neighborhood.
The rule of thumb is that if something looks, sounds or smells dramatically different than the majority of immediately surrounding properties, or the neighborhood is subjected to noises (such as an airport, an interstate freeway/highway, railroad tracks, power lines, etc.), that nearby neighboring subdivision are not subjected to, it is highly probable that the sales prices for a property proximate to such influences will be less than other properties that a potential purchaser might consider as an option.
How much less?
That can only be ascertained by analyzing properties with similar physical attributes features and external influences, versus other properties with similar physical attributes that are not influence by similar external influences, or doing a paired sales analysis.
The “5 to 10 percent” reduction, quoted above, is probably a national or regional average. The diminished value will likely be directly proportional to the severity of the influence, and the generally acceptable tolerances of the neighborhood itself.
Adjustment requires evidence.
As The New York Times article observes, not all nuisances are quantifiable.
“I’ve never seen a location adjustment because of barking dogs or loud teenagers,” said Richard J. Ward, a certified residential appraiser who works in central and northern New Jersey. “The appraiser has to be able to provide some sort of evidence for that adjustment. The lender requires that we provide them with a comparable property with a similar external obsolescence.”
A property owner affected by external factors has minimal avenues to seek relief.
Some “next door” annoyances may potentially be mitigated with help from the local municipality if it is an issue restricted by local zoning ordinances, such as prohibited farm animals, trash, abandoned vehicles stored in plain sight, loud music at unreasonable hours, etc.
This may be a small window of relief opportunity, but it is a proactive strategy, nonetheless.