Whether it's the perpetual yard sale, two feet tall grass, Christmas lights still hanging in July, dead trees, backyard roosters or cars parked everywhere – the condition of neighboring houses can make life awful and affect property values by 5 to 10%. Studies by economists measuring the impact on a home's value after a registered sex offender moves nearby have shown a decrease in value of around 4%. The appraisal industry calls this neighbor “external obsolescence” which means this is a factor that is beyond your control…but it still affects your property.
The biggest form of external obsolescence has been with homes that have been foreclosed on. Many of these homes have gotten so run down and the weeds are so high. Many Cities are enforcing the real estate agents that take these listings from the banks to take care of the grass (or lack thereof) and make the curb appeal much better or there will be fines.
So, yes, your neighbor’s house and neighboring homes do affect the value of your home. Try to get things cleared up before putting your home on the market if you can. Some sellers have paid for neighbors lawn clean up or paint job. In the end tho, living in the city, all jammed in together is not for everyone and a number of things are beyond our control!