Does Our Neighbor's Foreclosure Affect Our House's Value?

Foreclosures can lower the value of all nearby houses.
i David Sacks/Lifesize/Getty Images

Foreclosures aren't just bad for the homeowner who lost his home; they are also bad for the value of other homes in the neighborhood. If the foreclosure sale happens quickly, the value of your home might not be affected too much. However, the longer the house sits abandoned, the more likely it is to lower the value of your home.


Real estate agents typically provide buyers with a list of recent sales near your home so they can compare prices and determine if your house is a good value. Most real estate agents don't include foreclosures unless they are the only recent sales nearby, but the prices can be significantly lower than your asking price. If there are foreclosed homes still for sale near your home, you could be forced to lower your asking price to try to attract buyers. Some foreclosures may sell for half of what you're seeking in the sale of your home, and that can make it difficult to find full-price buyers.


A homeowner who learns that foreclosure is imminent might cease to care about the upkeep of the home. After he moves out, the bank may be slow to take possession of the home. This can lead to a home that looks abandoned and in disrepair, with an unkempt yard, broken windows, missing shingles or loose shutters. Even if real estate agents don't provide information on the foreclosure to people who come to look at your house, the buyers might be hesitant to buy near a home that is abandoned, causing you to lower your asking price to attract the buyers.


The closer your house is to a foreclosure, the more likely it is that you will see your home value fall slightly. A 2008 study by the University of Connecticut and Fannie Mae found that a house's value is likely to drop 1.3 percent if you live within 300 feet of a foreclosed home and 0.6 percent if you live 300 to 500 feet from one. A nearby foreclosure may lead buyers to believe the neighborhood is unstable, making them hesitant to buy your house unless you sweeten the deal by lowering your asking price.

What to Do

Although you aren't in control of the bank's schedule for preparing the foreclosed house for sale, you and your neighbors can take some action to help get the home sold faster, freeing up your home to rebuild its value. Ask a real estate agent to research which bank owns the home or check the foreclosure notices in the newspaper. Call the bank regularly to complain about the unsold foreclosure, and ask your neighbors to do the same. Ask if they know anyone who is a customer of the bank, as complaints from customers often carry more weight. Be polite when calling the bank; the person you talk to probably isn't the decision maker, but he can continue to pass your complaints along until the bank takes action. You can also contact the neighborhood's homeowner association, which is capable of taking legal action against the bank if it violates the community codes by not mowing the lawn or otherwise maintaining the property.

the nest