Using A 20 Mile Radius As The Neighborhood

[J Grant]

Having hopefully addressed Res Guy's point...and since a number of people are extending discussion from neighborhood boundaries to market area ( and market area involves comps, what else is it about)

Establishing the neighborhood boundaries should make sense relating to geographic boundaries as well as as recognizing an area around a subject where an occupant would reasonably travel for stores, transportation, schools, area amenities. services. That physical area could be small or large; under a mile or well over a mile. But whatever the physical size, it should be able to be explained in an understandable way and make sense.

The market area we then use for a comp search, ( everyone seems to agree) can be inside or beyond the neighborhood...The problem Imo of further away comps/extended market area concerns 2 issues:

1) when appraiser excludes closer location similar comps and uses far location ones that are less similar, (with no appropriate explanation , 2) the further off comps , while the properties may be similar to subject, their respective neighborhoods are NOT similar / competing neighborhoods, but are very different/ highly superior or inferior ( without a reasonable explanation nor appropriate adjustment made)

I don't think its the distance per se what most clients object to about far off comps, it is when the comps themselves are poor choices/ don't make sense, or the explanation for using them is missing or does not make sense.

 

[Meandering]

Establishing the neighborhood boundaries should make sense relating to geographic boundaries as well as as recognizing an area around a subject where an occupant would reasonably travel for stores, transportation, schools, area amenities. services. That physical area could be small or large; under a mile or well over a mile. But whatever the physical size, it should be able to be explained in an understandable way and make sense.

Take a deep breath.

Now,

Other than arbitrary geographic boundaries,

What IS a neighborhood?

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[J Grant]

When the market area radius or mileage far exceeds the neighborhood boundaries, all appraiser needs to provide is a simple explanation that makes sense.

" The subject neighborhood is X (describe it).Then: The subject is a lakefront new home that is one of the few new homes built in the neighborhood, as well as one of a small number of year around lakefront homes as lake front sites are limited in number and some of them are older, small cottages which are not appropriate comps. Therefore, in order to find similar site, size, age, and finish comps, the appraiser used lakefront home sales, as well as a new home sale as comps located in Y and Z competing neighborhoods. The comps are over 5 miles away, but within the market area of homes along (name) Lake.. " One can add to the explanation example, but a sensible explanation of why a larger area is used is all most clients want.

 

[Meandering]

When the market area radius or mileage far exceeds the neighborhood boundaries, all appraiser needs to provide is a simple explanation that makes sense.

" The subject neighborhood is X (describe it).Then: The subject is a lakefront new home that is one of the few new homes built in the neighborhood, as well as one of a small number of year around lakefront homes as lake front sites are limited in number and some of the lakefront sites are small summer cottages, which are not appropriate comps. Therefore, in order to find similar appeal, age, and finish comps, the appraiser used lakefront homes and a new home sale comp from Y and Z competing neighborhoods that are within the market area . " One can add to the explanation of course, but a sensible explanation of why a larger area is used is all that most clients want.

please don't tell me about specific unnamed neighborhoods you've been in.

What IS a neighborhood? Do you have a definition for neighborhood?

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[J Grant]

Of relevance to the thread concerning neighborhood vs market area ...look at the below question copied from bottom of the URAR page one:

URAR-Does the property generally conform to the neighborhood (functional utility, style, condition, use, construction, etc.)? Yes No If No, describe

Regarding the answer to this question/ related questions, the report as a whole has to sync up. If you wrote there were no lakefront new home sales in subject neighborhood because neighborhood is mostly comprised of small lake front cottages, thus comps are 10 miles beyond neighborhood but located in a market area, then the subject the answer is NO, the does not generally conform to the neighborhood.

But we see appraisers mark YES it does conform, when clearly it does not. THAT is why clients ask for explanations or reject reports, the contradictions right there to see.

A subject can be non conforming to neighborhood, yet still marketable....which is what client /Fannie wants to know. Okay, subject is not conforming to neighborhood, how marketable is the big new subject lake front house located in a neighborhood of smaller, older, summer cottages on the lake? (explain why) Clients get frustrated, or a property can be needlessly denied approval, because the report is full of contradictions or explanations are missing or if provided, don't make sense.

 

[residentialguy]

A neighborhood is just an area of complementary land uses. The term "neighborhood" is used in appraisals to show external influences that directly affect the value & marketability of the subject. "Market area" deals with comparables. Sometimes they are the same boundary...sometimes the market area incorporates multiple neighborhoods. The Neighborhood boundaries may contain non comparable property types, as well as commercial properties that serve the residents of the neighborhood, whereas the boundaries of the subject's "Market area" will be defined first and foremost by the proximity of comparable properties. Of course, FNMA in it's typical blundering fashion created more confusion by blurring the lines between "neighborhood" and "market area" by occasionally using the 2 terms interchangeably.

 

[Terrel L. Shields]

Of course, FNMA in it's typical blundering fashion created more confusion by blurring the lines between "neighborhood" and "market area" by occasionally using the 2 terms interchangeably.

Exactly and that gets passed onto appraisers in class, and many fail to distinguish the two. Further, the definition of neighborhood is not a well thought out definition. The classic definition above is great in areas where a subdivision is 100 homes or more. But many rural areas have towns with no more than 100 homes and a few commercial buildings. But in reality, this cohesive social unit of houses AND retail is the neighborhood. It is part of why there are houses there. Obviously downtown Bugscuffle isn't residential but it is central to the community it serves and without the DT there would be no homes and without the homes no reason to build a Sneez&Freez or CrappyMart. These one-block, two-block "Downtowns" are still a common focus to those villages and an artificial separation of the residential and retail is not an accurate depiction of the real "neighborhood."

 

[Meandering]

A neighborhood is just an area of complementary land uses. The term "neighborhood" is used in appraisals to show external influences that directly affect the value & marketability of the subject. .

Bearing this definition in mind,

Wouldn't all the farms, and farmers, who belong to the same farming cooperative be in the same neighborhood?

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[residentialguy]

Wouldn't all the farms, and farmers, who belong to the same farming cooperative be in the same neighborhood?

Maybe But Coops can be a membership that goes over multiple states. Coops might be more of a market area boundary

 

[DWiley]

Exactly and that gets passed onto appraisers in class, and many fail to distinguish the two. Further, the definition of neighborhood is not a well thought out definition. The classic definition above is great in areas where a subdivision is 100 homes or more. But many rural areas have towns with no more than 100 homes and a few commercial buildings. But in reality, this cohesive social unit of houses AND retail is the neighborhood. It is part of why there are houses there. Obviously downtown Bugscuffle isn't residential but it is central to the community it serves and without the DT there would be no homes and without the homes no reason to build a Sneez&Freez or CrappyMart. These one-block, two-block "Downtowns" are still a common focus to those villages and an artificial separation of the residential and retail is not an accurate depiction of the real "neighborhood."

I find that appraisers often undershoot on the size of the neighborhood. The definition requires complimentary land used (plural). I live in a very large subdivision, but it is composed entirely of SFRs. No bank. No markets. None of the complimentary uses necessary for residential living. Yet, when I see report for homes in my development most identity the subdivision as the neighborhood.