USPAP violations? neighborhood boundaries

[DMZwerg]

I am doing an appraisal tomorrow of a property in a neighborhood in a market area area of well over 3,000 homes, with at least 11 seperate named neighborhoods.
<snip>
The subject competes with the entire market of 11 contigious neighborhoods. From that market one can extract market data and form an opinion of market value.

Is there any definable motion through the area? (aka, do values change from one "boundary" to an opposite "boundary")

I know of areas where "defined neighborhood" can change by a block for every block you travel east up to a certain point as the typical sales price slowly increases from "the Valley" (effectively a "ghetto") to the lakefront. In such circumstances each street east (or west, north, south) would define a slightly different "neighborhood"/pocket of similar style/use/etc properties and each neighborhood would overlap the one before and after it. Such is not that uncommon when neighborhoods approach different usage areas, in my case between a transportation corridor and a residential-commercial lakefront corridor, but same could decline towards a manufacturing area, etc.

No matter what, defined well enough there shouldn't be a problem with neighborhood boundaries.

 

[Don Clark]

Typically, I agree with your posts. But I think this time you've exampled an issue that is out of context with the intention of what was meant by that instruction out of Fannie Mae. First, regarding your example, I might argue that those are not neighborhoods, they are subdivision names. The reason not even the property owners can recognize the dividing lines is due to that. Most neighborhoods are made up of many subdivisions. However, regardless of that, Fannie meant appraisers that do something like take an urban area and try to define a ten by ten mile area of it as one single "Neighborhood" for no other reason than many of these appraisers doing that think if they do that then they do not have to explain why they went into competitive neighborhoods for comps. Nor do they then have to explain the lack of location adjustments.

So the issue(s) Fannie was attempting to address was using "expanded" neighborhood descriptions as a B.S. method of trying to get out from under the appropriate Standard Two reporting that has to be done, and Standard One work as well.

Web,

Exactly! I agree with you 100%, but, some of the posters have more narrowly defined the term. In the situation you mention, and I have attempted to highlight, the market area and neighborhood are much the same. But, read some of the other post. They are narrowly defining neighborhood to be what you are calling a subdivision.

 

[DMZwerg]

Web,

Exactly! I agree with you 100%, but, some of the posters have more narrowly defined the term. In the situation you mention, and I have attempted to highlight, the market area and neighborhood are much the same. But, read some of the other post. They are narrowly defining neighborhood to be what you are calling a subdivision.

For the record, the named neighborhoods in Milwaukee generally consist of a dozen or more subdivisions, even counting add's in some cases. Also, even though the NBHDs are named sometimes the market neighborhood is 1 or more of these named NBHDs, especially at/near boundaries.

In my opinion subdivision name generally does not define a neighborhood except possibly in cases of very recent (and often larger) subdivisions.

 

[Webbed Feet]

Web,

Exactly! I agree with you 100%, but, some of the posters have more narrowly defined the term. In the situation you mention, and I have attempted to highlight, the market area and neighborhood are much the same. But, read some of the other post. They are narrowly defining neighborhood to be what you are calling a subdivision.

But that is wordsmithing and a really tough topic. One could have a single subdivision that is the neighborhood, and one could have a neighborhood with XX number of subdivisions in it. This is where the warm and fuzzy part of being a geographically competent appraiser is required. Regardless of if we say "Neighborhood," "Market Area," "Micro-Neighborhood," or whatever label we stick on it, if the appraiser describes an area with very significant changes in locational value within the same area.... that appraiser has jumped significant boundaries and if not reporting and accounting for them has pretty much blew it.

 

[Don Clark]

But that is wordsmithing and a really tough topic. One could have a single subdivision that is the neighborhood, and one could have a neighborhood with XX number of subdivisions in it. This is where the warm and fuzzy part of being a geographically competent appraiser is required. Regardless of if we say "Neighborhood," "Market Area," "Micro-Neighborhood," or whatever label we stick on it, if the appraiser describes an area with very significant changes in locational value within the same area.... that appraiser has jumped significant boundaries and if not reporting and accounting for them has pretty much blew it.

I agree......up to a p;oint, or, as some would say...."there are exceptions to every rule".

I did an appraisal sometime ago in a neighborhood with very clearly defined boundaries. It was built over 50 years ago. All of the streets have names made famous in WWI. There were over 60 closed sales in the neighborhood. Howver, intervening circumstances now cause that neighborhood to actually have 3 seperate parts to it. About 1/3 of the homes are short sales or foreclosures. Another 1/3 are original homes with some modifications over time, and are arms length resales. 1/3 are new spot built homes that are an ongoing revitilization of the neighborhood. Obviously the lower 1/3 is also the lower range of value, the middle 1/3 is the middle range of value, and new spot built homes are the upper ranges of value. Now, going by what Fannie Mae wants as an analysis of that neighborhood, it would cause a few problems. 1. The median would be misleading. 2. Any appraisal in the upper range of value would be questioned by a UW. 3. The forces of progression and regression would need to be accounted for. I contend that it is better to identify where any subject property fits, lower, middle, or upper and comment on the range of value within those areas rather than the entire neighborhood, and to select sales that are within the range where the subject is located. What I actually did was to make comments similar to this, and demonstrate why the subjects value was in the upper range of value rather than nearer the predominant range.

 

[Webbed Feet]

<....snip....> What I actually did was to make comments similar to this, and demonstrate why the subjects value was in the upper range of value rather than nearer the predominant range.

Very understandable... But still, you have to admit, this topic is a moving target for appraisers to try and discuss using this kind of communication with each other, forum posting. Any lacking of a clear appreciation of what the other fellow might be dealing with and any replies or answers could be off the mark. Briefly, locations are unique and very often the "forms" are not up to the job of describing them.

 

[The Dog]

[ Most neighborhoods are made up of many subdivisions. However, regardless of that, Fannie meant appraisers that do something like take an urban area and try to define a ten by ten mile area of it as one single "Neighborhood" for no other reason than many of these appraisers doing that think if they do that then they do not have to explain why they went into competitive neighborhoods for comps. Nor do they then have to explain the lack of location adjustments.

[/quote]

To muddle the water even more, FHA uses the following: Neighborhood Name • Enter the name of the subdivision, if applicable, or the commonly known local neighborhood designation. If the subject property is in a planned unit development, provide the name of the development.

 

[USPAP101]

The word "Neighborhood" as used throughout the 1004 and 1004MC does not mean the same thing. FNMA has failed to properly define neighborhood and therefore caused market confusion. It is your responsibility as the appraiser to make sure the intended user understands what you mean.

USPAP Standard 2-2 from 2010-2011 edition Page U-21 Line 646

An appraiser must supplement a report form, when necessary, to ensure that any intended user of the appraisal is not misled and that the report complies with the applicable content requirements set forth in this Standards Rule.

The AI Dictionary defines the neighborhood as:

A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises.

Your neighborhood boundaries should include homes, businesses, schools and other supporting facilities. One can not survive without the other. When properly defined, your neighborhood should have ample "competing properties". Notice I did not say "substitute" but competing. If we would remove ourselves from the "form" mindset every once in a while, we just might provide more credible and reliable results.

In other words, rarely is a "subdivision" a "neighborhood". They are a sub set of properties in the neighborhood, hence the name "subdivision". Can they be?? Sure!! Are they always?? Mostly not.

Statistically, using a small subdivision does not have enough parameters to have any statistical meaningfulness. Your research should include enough information to provide a credible market trend analysis, regardless of how the "form" reads.

Appraisers have no problem writing a 2 page dissertation about other elements of the 1004. Why are so many stuck on the poorly written directions in the 1004MC??? :new_smile-l:

 

[NC Appraising]

USPAP, I agree.

I'll add that the "Neighborhood" changes from urban, suburban and rural locations. An urban neighborhood can be much different than a suburban neighborhood.


To all, how would you classify this as the neighborhood or subdivision:

Suburban area, subject is located in a newer cookie cutter project (subdivision name The Oaks) with a price point of $275K.

Across the street is a subdivision named The Great Oaks, with a price point if $850K. These are custom homes.

There many subdivisions that surround the two above named projects, and many share the same schools, nearby restaurants, and shopping centers.

Would you classify each project or subdivision as the neighborhood or would you draw your lines to include all of the projects and subdivisions?


This is very typical of the markets that I work in.

 

[Webbed Feet]

<...snip....>Would you classify each project or subdivision as the neighborhood or would you draw your lines to include all of the projects and subdivisions?


This is very typical of the markets that I work in.

I would lean towards all, many, some, or several of the projects and subdivisions being in the same neighborhood. But my answer is "That depends!"