This post is a basic cut and paste from a letter to a concerned past client who has a neighbor who is not living up to HOA guidelines and likely hurting his neighbor’s home value.
Home Value Answer to Client – Actual letter
I am so sorry to hear about this issue with your neighbor and your HOA. I hope you, your neighbors and the HOA can get this situation fixed quickly. When you asked about how a neighbor can affect your home value, my experience told me 10%. Typically, when you have two identical houses and one has an external negative condition that a buyer cannot correct I have always advised the impact is 10 to 20%. My advice is 20% when it is something like a very busy road like a highway, or a train or negative retail like a big mall with lights. The 10% is more for an experience like a neighbor, or maybe a bigger issue that is a few houses away. The location is the single most common driver in value which is where the Location, Location, and Location real estate joke comes from. In the past 10 years, I have run reports for people maybe 10 times about the value or their future value if the buy a house that has a negative situation like a road, store or a neighbor. Buyers are attracted to the house that seems like a good value until the see the negative impact. They are always drawn to the discounted price, however, in every case, the buyer decided not to buy the impacted house.
Stepping outside my experience the market, I looked at some national statistics to help confirm my experience. Interestingly, there are three articles below that rank on the first page of a google search of “how much can a neighbor affect my home value” and all of them quote 5 to 10%.
Again, I am so sorry this is your experience with your new home. This is not an acceptable situation and I can be of any help with this, please let me know.
… and now, my counterpoint to the letter above.
Not all Homes with Negative Location are a Bad Idea
As a side note, there are great homes that have an external negative impact that can be a great fit for a buyer. You should expect to save 5% to 20% when compared to a similar house without issue. If you just need a nice large house on a budget because income and family size dictate those criteria. A house like this could be a good fit. Assuming the negative impact is consistent from the time of purchase to when you sell it, you should get a discount on the way in and give it to someone else on the way out. The trick is making sure you are ok with the impact while you live there.
If you or someone you know is in the market and has a specific question like the one above, let me know. I strangely like answering real estate questions.