Neighborhood Boundaries

[Greg davenport]

Can someone point me to a written definition of “Neighborhood Boundaries” as used on the Fannie 1004? I can’t seem to find anything.

I have a review where the boundaries are over 50 miles are so (covers different markets, and cross a county and school district line), I believe that’s way too large, but I can’t find anything that tells me how to define them.

 

[Mary Tiernan]

I think the most important aspect of the neighborhood boundaries is to ensure the comparables as provided are within the defined boundaries.

If you believe the neighborhood boundaries cross into different markets, state so.

Neighborhood boundaries as defined in original appraisal do encompass the subject and the comparable sales. However, a more accurate description of the neighborhood would be properties in the XX school district, XX county, bounded by XX streets.

Sales located in XX school district, to the west of XX street, are considered superior/inferior and are not considered relevant to the subject.

something like that is what I would provide, but, I don't think there is any real definition of neighborhood, except as Henry Harrison provides in his books.

 

[Mountain Man]

I don't know of any written guidelines for neighborhoods. Neighborhoods can bound by: geographical obstructions, economic, governmental and tax districts, as well as property designs or types and uses. It really boils down to the principle of substitution... if a buyer couldn't have that one, what else would they consider? In my area, a neighborhood can school districts. In other cases it's a specific exclusive subdivision. It can also be all lake front properties regardless of the county or school district. People who can afford a lake home don't really care about the schools as they can also afford private education. Then in commercial it can be the city/county/state or a whole region.

 

[Mike Phillips]

I do not believe Fannie Mae has ever provided a definition of a neighborhood and certainly not an explanation of how to determine neighborhood boundaries.

I believe you will find what you are looking for in "The Appraisal of Real Estate" which, BTW, is the authoratative work on the subject, IMO. I don't have a copy of the current text.

Basically, the process is to start with the subject property as the center of the neighborhood and extend outward in all directions until there is a significant difference in the way one (or more) of the four forces that affect value (in general) affect the subject property versus other properties. I'm guessing you already know the process so I'm not going to provide examples of neighborhood boundaries.

Regarding your review, I feel you pain, but I'm not sure how I would address the issue of an excessively large neighborhood. The truth is, I've given up the fight. IMO, accurately defining neighbohood boundaries is a lost art; not one that appraisers have ever taken much pride in doing correctly.

Needless to say, the neighborhood section of the Fannie report was all but ignored for decades until that data finally become important. No one paid any attention to it so now we have the 1004MC which will do absolutely nothing to solve the problem because there will be no consistency in how neighborhoods are defined.

I've seen appraisers argue that USPAP speaks of "market area" as opposed to "neighborhood" and I have seen that fact used as an argument in favor of calling market areas neighborhoods. And/or ignoring the concept of neighborhood altogether, in spite of the fact that the Fannie form says neighborhood - not market area.

The end game for many of today's appraisers seems to be defining neighborhoods as largely as possible in an effort to make the data as applicable in as many future reports as possible.

Good luck.

 

[Restrain]

Generally, a neighborhood is defined by the market. It may be major streets, a particular school district, or it may be an entire county. Do not be over-restrictive or excessively inclusive in your neighborhood description.

Look at where a typical purchaser would go for an alternative property. That should help you define your bounaries. Remember, your neighborhood boundaries, like all portions of the appraisal, must be supportable.

Here's a prime example of one I looked at in the early 2000's. It was a mfg home, in a group of subdivisions of mfg homes on acreage lots. The origination appraisal defined the neighborhood as the entire county, the northern portion of the county to the south, and half the county to the east. The reason? He was using the old trick of the mfg home dealers invoice plus setup plus lot value as a sale, as opposed to actual sales. The true neighborhood, which had numerous MLS sales, was easily definable as that immediate 5 mile x 5 mile area of manufactured home subdivisions, since the typical buyer looking in that market would have had numerous competing properties of simlar homes to choose from.

Hope that helps.

 

[Jack Straw]

Whats wrong with defining a neighborhood as a smaller area of the submarket? If I go out side the neighborhood, I just state it and remind the reader that I did not go outside the submarket.

I never get questioned using that method.

 

[Randy Pippin]

My area covers several rural counties, in some of those counties the "neighborhood" includes all rural sales in the county and in some cases the adjoining county as well.

People that want to live in the woods will not look at a house that is not in the woods, hence it is not unusual to have up to 30+ miles between comparables located in two different counties.

 

[444nutman]

My favorite was the one review I did the neighborhood boundaries were 1 block to the north, south, east and west. There were not any sales within the neighborhood boundaries for two years. I agree with Mike neighborhood analysis is a lost art.

 

[PropertyEconomics]

There are many theories that Neighborhoods are very large areas that must include shopping, places of worship, schools of all types, employment, etc .. and that smaller areas, such as you are attempting to define, are called "districts" within the larger neighborhood.
If you are doing a review, what leads you to conclude that your neighborhood description is more accurate than that of the original appraiser?

 

[Wendy]

Sigh. If you all had a copy of the "rules" you would know that the boundaries are whatever streets successfully enclose all of your cherry-picked comps.

That "rule" is listed right under the one that says that the predominate value must equal the subject's value.

No wonder why you can't get 5 reports done a day. Who trained you?