Neighborhood Boundries

[SANDY]

I need to know what is the correct answer to this puzzling question?
Is there a Definition of what the neighhood boundry is. Does your comps need to fall within the boundries.
I also have my comps within my boundries. I am reviewing a report and all the comps are outside of the boundries with No explanation. Can that be done
Thanks

So let's get back to helping this dude out. I say be careful automatically assuming that just because the appraiser used sales outside the "neighborhood" boundaries that you should call him/her on it.

 

[Laughing Heir]

So let's get back to helping this dude out. I say be careful automatically assuming that just because the appraiser used sales outside the "neighborhood" boundaries that you should call him/her on it.

Totally agree with Sandy, Tim, and others on this one. My region is almost completely suburban - a neighborhood could be the same area as the market area but it rarely works out that way.

I might be a lowly trainee, but I have seen the output of many CRs in my area - no description at all about market area, like it doesn't even exist. Description of the physical boundaries of the 'neighborhood' and that's that. When a local appraiser is reviewing these reports, how in the heck are they supposed to understand the original appraiser's reasoning for comp selection, market conditions, etc.; if a local guy can't understand it, how in the world is the client supposed to make an educated decision.

I take the phrase 'summary report' to mean concise, not ambiguous. The original appraiser of the poster's review assignment is making his job unreasonably difficult.

 

[Zero]

Guess it would depend on your market. IN MY MARKET, a market area could be several neighborhoods. There are probably several hundred neighborhoods in Colorado Springs and a dozen MLS marketing areas. The key is...would a buyer buy in a competing neighborhood? If so, then that is the market area.

Preferably, comps should come from the same neighborhood, if available. Best possible comp? Exact same model, next door, that sold yesterday.

I agree with Mike.

Maryland neigborhoods A, B & C are located in close proximity to Washington DC, similar distance from the heart of darkness, but are 1+miles apart. (Different Neighborhoods, different geographic location). Interestingly, they are in the same market area as they are physically and functionally similar, are in similar proximity to the heart of darkness, and are competitive with each other, including similar sales prices, market trends, etc.

As such they are different neighorhoods but are in the same market area. Unless you decide to define the entire state of Maryland the neighborhood...and then, who needs a market area?

Often, using a COMPARABLE from a competing neighborhood (i.e. in the market area but out of the neighborhood) is far more useful than using a SALE from the neighborhood.

NO. They are not the same thing. Without distinguishing between neighborhoood and market area, neither really has any descriptive utility and they become lingo for "where I got the sales on the grid." And if that's what appraisers are doing, my answer is...Wow. Really? That's great work. Almost as good as the "By Mennen" sales campaign! What's next, the "Is what it is" addendum?

 

[Darrel Clark]

From “The Dictionary of Real Estate Appraisal, 4th Edition”: Neighborhood – A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises.

Market area – The geographic or locational delineation of the market for a specific category of real estate, i.e., the area in which alternative, similar properties effectively compete with the subject property in the minds of probable, potential purchasers and users.

For me, it couldn’t be much clearer. Do you want comparables taken from an area of complementary land uses, or from an area in which alternative, similar properties effectively compete with the subject in the minds of probable, potential purchasers and users?

I know that some lenders and some state boards are caught up in the neighborhood thing. But, just look at the definitions.

 

[SANDY]

From “The Dictionary of Real Estate Appraisal, 4th Edition”: Neighborhood – A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises.

Market area – The geographic or locational delineation of the market for a specific category of real estate, i.e., the area in which alternative, similar properties effectively compete with the subject property in the minds of probable, potential purchasers and users.

For me, it couldn’t be much clearer. Do you want comparables taken from an area of complementary land uses, or from an area in which alternative, similar properties effectively compete with the subject in the minds of probable, potential purchasers and users?

I know that some lenders and some state boards are caught up in the neighborhood thing. But, just look at the definitions.

I might be wrong but I think the issue is(assuming that the reviewer has confirmed that there are no or too few comparable sales available from the same neighborhood or maybe even better comparables available from outside the subject neighborhood but within the same marketing area) then the reviewer should not automatically jump to the conclusion that the appraiser selected the wrong comparables. Obviousely under normal circumstances comparables from the neighborhood would be most desirable but it is possible that the use of comparables from the neighborhood merely because they are located in the neighborhood may or may not be the best ones to use if they are less comparable than others that happen to fall outside the neighborhood but are in the same marketing area.

 

[Artemis Fowl]

The reviewer should undertake due diligence to understand if the "outside the neighborhood boundary" sales are within the market area. Only then can he make a credible judgment on the reliability of the sales as indicators of value and whether the original appraisal sufficiently supports its inclusion within the context of the intended user/reader.

The OP appears to have phrased the question in a way that reveals he does not understand the difference between neighborhood and competing market area. Furthermore, it appears to indicate a "check-box think" approach to reviewing. This is a casual forum but the phrasing, spelling and grammar of the question is atrocious. I reference post #6 and sincerely hope, for the original appraiser's sake, that the reviewer has the competency to credibly complete this assignment.

Good for you OP for asking the question. I have learned more from this place (sometimes painfully) than anything else I have been involved in. I hope you learn something from the responses given. Please consider them carefully and come back for more.

 

[Mike Boyd]

I frequently have to go outside the IMMEDIATE neighborhood for comps. Usually because there are no recent sales. Whenever I do so, I explain, as follows: "No recent sales of relevant properties found in the immediate neighborhood. Therefore, it was necessary to go to competing neighborhoods that have similar neighborhood amenities and characteristics."

 

[Mike Garrett RAA]

And that is really the name of the game...explain, explain, explain.

 

[Cob]

I need to know what is the correct answer to this puzzling question?
Is there a Definition of what the neighhood boundry is. Does your comps need to fall within the boundries.
I also have my comps within my boundries. I am reviewing a report and all the comps are outside of the boundries with No explanation. Can that be done
Thanks

Have you thought that maybe the appraiser was typing over a report that was near the area of the appraisal and just neglected to change the neighborhood boundaries.

 

[CT Value]

I need to know what is the correct answer to this puzzling question?
Is there a Definition of what the neighhood boundry is. Does your comps need to fall within the boundries.
I also have my comps within my boundries. I am reviewing a report and all the comps are outside of the boundries with No explanation. Can that be done
Thanks

Cheftso,
The neighborhood boundaries should be the area which is homogeneous to that of the subject. This of course is open to each appraisers discretion but none the less all of the homes within the neighborhood boundaries should be fairly similar in one regard or another. Once you see a shift in the neighborhood for one reason or another such as the ages of homes get significantly newer, significantly older, significantly larger, significantly smaller, etc. then you most likely have reached a boundary. Depending on where you are appraising it may be normal to have some commercial, industrial or agricultural influence with the boundaries as well.

It is also normal to have comps that are outside of the neighborhood boundaries. When this happens to me I will include a comment such as the following in my appraisal. "The market data is extremely limited for homes similar to the subject with respect to age, style and square footage. As a result this appraiser found it necessary to utilize 1 sale located outside of the subject's neighborhood boundaries."

I'm glad to see that you said comps exceed the neighborhood boundaries and not exceeded the 1 mile guideline as there really is no such thing as the 1 mile guideline. I'm not sure how the 1 mile guideline thing ever got started but it is a paradigm that has seemed to live on for quite a long time in appraising.

Rob