Describing neighborhood characteristics

[Smokey Bear]

After just reading a post on Fannie guidelines, and on adequatetly describing neighborhood characteristics, and also in not basing the lending decision on racial factors, I need to describe a ghetto nieghborhood with boarded up houses, burglar bars, lots of people going in and out of the boarded up houses , high crime area, ain't no way I'm taking comp pix in THIS neighborhood.

So how do you describe ghetto without getting into those areas that might be considered redlining?

 

[Bobby Bucks]

Pre-gentrification should be politically correct enough.

 

[xm39hnu]

Like you just did. Except that the "high crime area" should read something like, "The overall crime rates in the City, expressed in units per 100,000 population, is XX for murder, zzz for rape, zzz assault, zzz burglary. In the subject neighborhood, those rates are YY murder, YYY rape, YYY assault, and YYY burglary, according to the Office of Unemployed Bureaucrats who keep track of this stuff."

In other words, use direct data instead of conclusory statements. You could use a table, too, if your software allows you to.

In a case like yours, it might be better to put **See comment addendum in the neighborhood description and market conditions blocks, and narrate hell out of it. The small form blocks will psychologically shackle your narrative. Go full page and turn it loose. You've got a lot of facts to convey.

Let this one age for a few hours, then edit out the nonessentials (and you'll have them.)

 

[George Hatch]

I need to describe a ghetoo nieghborhood with boarded up houses, burglar bars, lots of people going in and out of the boarded up houses , high crime area, ain't no way I'm taking comp pix in THIS neighborhood.

What do you really need to describe in order to complete your assignment?

The subject property is part of an urban residential neighborhood that was originally built out in the 1920s-1930s and includes a wide variety of residential units including 2-4s and apartments. Typical SFR sizes in the area range from ~700 - 2,000+ SqFt. Many of the larger homes are the result of additions. There is currently a trend for redevelopment and rehab of poor conditioned and vacant properties, with some investor activity noted among the sales data. Physical conditions levels range from poor to average when compared to other residential neighborhoods in the metro areas. Vacancy rates for SFRs range from about 3% - 5%. Based on a review of all SFR sales data in the neighborhood during the last 12 months, average exposure times are from 2-3 months in generally habitable condition and 3-4 months for homes in need of significant rehab.

Voila - no need to mention crime rates, barred windows, crack houses, hookers or gangstas. Anyone who could read that summary and not understand this is an inner-city area with the attendant economic and social problems isn't paying attention.

 

[Austin]

Post the census tract demographic data from the Department of Commerce and do a comparative analysis of about four surrounding census tract block groups including crime rate and such.
I appraised a property in a similar neighborhood once that was damged by fire. The purpose of appraisal was to determine value as repaired. I took pictures of the subject and street scenes. About a month later I received a letter from the head of the department of the insurance company. He stated that after 35 years in his business my neighborhood analysis was the best he had ever seen. Didn't write one word, just pictures.

PS: The demolished the house.

 

[Rich Heyn]

George is right. Avoid subjective terms like "high crime area." You don't need to get into stats on crime rates or the Fair Housing Law Enforcement Agents will be dragging you off and working you over with a truncheon made out of old copies of USPAP. I can see it now.

FHLEA: Why were you discussing crime rates?
CH: Those are facts that describe the neighborhood.
FHLEA: So what?
CH: The client might want to know. It could affect value.
FHLEA: Do you have comps in the subject neighborhood?
CH: Sure.
FHLEA: Are those comps subject to the same issues as the subject?
CH Of course.
FHLEA: Then those comps would allow you to develop an opinion of value without discussing crime rates, yes?
CH: I supppose.
FHLEA: It almost appears that you could have been trying to tell the client that they might not want to make this loan.
CH: I wasn't doing that.
FHLEA: Still, we need to mete out some punishment.
CH: What do you have in mind.
FHLEA: You'll need to read AO-16 a dozen times with special emphasis on lines 62-89 and Illustration #1. Then write 1,000 times: "I will ensure that my appraisals do not contribute to illegal discrimination through subjective or stereotypical assumptions."

 

[Smokey Bear]

LOL Rich. Does that mean I should leave out comments about the oil refinieries in town, and the shipyards, and the numerous illegal emissions from the refineries? That siren blast sure is noisy when something goes wrong. But all comps are similarly affected so maybe I should leave it out. Besides, all those kids going into the boarded up houses could have been volunteering with Habitat for Humanity by helping to fix up the house.

 

[DTB]

What do you really need to describe in order to complete your assignment?

The subject property is part of an urban residential neighborhood that was originally built out in the 1920s-1930s and includes a wide variety of residential units including 2-4s and apartments. Typical SFR sizes in the area range from ~700 - 2,000+ SqFt. Many of the larger homes are the result of additions. There is currently a trend for redevelopment and rehab of poor conditioned and vacant properties, with some investor activity noted among the sales data. Physical conditions levels range from poor to average when compared to other residential neighborhoods in the metro areas. Vacancy rates for SFRs range from about 3% - 5%. Based on a review of all SFR sales data in the neighborhood during the last 12 months, average exposure times are from 2-3 months in generally habitable condition and 3-4 months for homes in need of significant rehab.

Voila - no need to mention crime rates, barred windows, crack houses, hookers or gangstas. Anyone who could read that summary and not understand this is an inner-city area with the attendant economic and social problems isn't paying attention.

Pretty creative writing there until: UW needs explanation of abandoned cars in photos, is this negatively impacting value? Also address any " illegal" uses in the subject's market and their impact on value. Also provide 2 additional comps with bars on window similar to the subject, must be within 2 blocks and 3 months blah,blah,blah...

 

[Ms. Janet]

The subject property is part of an urban residential neighborhood that was originally built out in the 1920s-1930s and includes a wide variety of residential units including 2-4s and apartments. Typical SFR sizes in the area range from ~700 - 2,000+ SqFt. Many of the larger homes are the result of additions. There is currently a trend for redevelopment and rehab of poor conditioned and vacant properties, with some investor activity noted among the sales data. Physical conditions levels range from poor to average when compared to other residential neighborhoods in the metro areas. Vacancy rates for SFRs range from about 3% - 5%. Based on a review of all SFR sales data in the neighborhood during the last 12 months, average exposure times are from 2-3 months in generally habitable condition and 3-4 months for homes in need of significant rehab.

.

Damn, YOU ARE GOOD, GEORGE!!!

 

[George Hatch]

Big Rant

A person could conclude that they are stuck between a rock and a hard place. On the one hand we have a professional responsibility to disclose the information necessary for our users to make informed decisions; on the other hand we have a professional responsibility to comply with the letter and the spirit of fair lending laws.

Think of it this way: if you were a minority borrower (and sooner or later we're all minorities) and you were turned down for a loan, it would be human nature to be looking through your copy of the appraisal report and whatever other dopcumatation available in the loan file to see if there are any indications of discrimination. What would you think if you saw the following sentence in the appraisal report:

"The subject property is located in a high crime area evidenced by a high incidence of gang related grafitti, bullet holes, chalk outlines and crack houses".

Would not some people conclude that such a description of the personal characteristics of the residents of that neighborhood might have figured into the decision by the lender to deny them credit?

Here's a rule of thumb: if you can quantify the effect on value of a neighborhood attribute there might be a reason to note it in your descriptions. If there's no constructive use for the information then perhaps it doesn't need to be in an appraisal report.

For instance, we can say that high crime rates detract from value, but can we say how much of the loss is attributable to that one factor? How much for the crime rate and how much because of the poor schools or the lack of services or the distance to retail centers or the lack of employment?

Your refinery is a bit different because that is an external influence that can be isolated out through comparisons with other neighborhoods of like composition but which lack their own refinery. Likewise for a freeway or a landing pattern at an airport.

Besides, a lender has access to other sources of information if they want to use criteria such as crime rates and racial makeup and religious orientation in their loan decisions. An appraiser need not contribute to or enable the illegal use of such information by a lender.

I'm not trying to be a bleeding heart, but we do have a responsibility to be dispassionate and emotionally detached when we write these descriptions. We should not allow our personal dislike for green shag carpeting or dog doo in the backyard to have undue influence on the assignment at hand, which is to value the realty within the context of its market segment.