Home Values and the Price of Bad Neighbors

My horrible neighbors are moving. Or at least trying to. And I’m going to do everything I can to help them.

This morning I noticed a “For Sale” sign on the front yard next door, complete with hand-written phone number. My first instinct was to sneak back after dark and add some balloons to the sign (the better to attract attention to the offer). For a fleeting moment I even considered helium balloons, but the cold temperatures would make short work of them. Besides, I reasoned to myself, the neighbor on the other side is probably thinking balloons as well, and no need for two of us to go sneaking about trying to spur the sale. An alternative would be to put a placard on the main road near our development, or take out a glowing ad in the local paper. But too uncertain, given the possibility of winding up with new neighbors worse than the ones I already have.

Because my neighbors are less than completely desirable, I have an even greater personal and economic incentive to bolster their home sale efforts. The quality of the neighborhood I am living in will be affected by whomever decides to move in next door. Instead of driving the neighbor’s sale price down by letting my yard or house look trashy and unkempt—a move that could hurt them economically and limit their options for the next home they buy—my best plan is to enhance the appeal of my home to enhance the appeal of their home, and the neighborhood, in any way possible. This is a win-win for me. I’ll get rid of them all the faster, and the next neighbors are more likely to be respectable people if the neighborhood looks respectable. Plus, the look of my yard will benefit in the process.

There are several economic incentives that figure into home sale questions. People try to buy assets, whether stocks or homes, that will grow in value. In line with that, it makes sense to preserve and enhance them. And the larger the item figures as a percentage of an individual’s budget, the more sensitive individuals are to prices, and the more carefully they make purchase decisions. Homeowners generally want home prices in the neighborhood to stay up so that families will move in who respect and display pride of ownership in their property. Often this extends to the surrounding properties as well.

There is a two-edged sword to this home value process, though, and it’s one of the reasons I won’t independently try to advertise or promote my neighbor’s house sale. Higher home sale (not asking) prices create a favorable market for all would-be sellers. They enhance the value of all comparable homes in an area—good if I’m thinking of refinance or selling sometime soon. They also increase taxable property values—not so good if I’m not thinking of selling at all.

A home, for example, that has a current market value of $650,000, built for $10,000 in 1955 and never sold, receives (at best) mixed blessings from rising property values. Owners will bear huge increases in property taxes along the way, and never see most of the benefits. As a person more likely to sell than to stay in one place for fifty years, I am likely to be a beneficiary of higher prices—another reason I should help my neighbor get out at a good price. It is one of the great features of markets that they promote cooperation among individuals whose interests are otherwise in conflict. If I benefit the disagreeable folks next door, I benefit myself.

I am counting on some tangible as well as financial benefits when the neighbors leave. (I imagine the other neighbor is as well.) No longer will the kids ride dirt bikes across other people’s lawns, light bottle rockets over the rooftops, or leave their dogs to bark incessantly, bite other homeowners, and stand in front of cars in the road. The family has no remaining cats to run away and live at my house; I think we have absorbed the only surviving refugee.

What I can do to help these people move along (literally) with their lives are the following: keep my yard and house as attractive as possible and generally behave like a desirable neighbor. Promoting the development as a desirable place to live will not hurt me in the least.

Even though the market isn’t perfect, it is likely to give me the best possible outcome if I work with it, than if I try to work against it. Bon voyage, guys!