Neighborhood vs. Market area

[Doug Wegener]

I understand that the 1004 MC is not asking for information on the "Market area", and more and more often I am having sparse or little information in the actual "neighborhood."

However, my question is the neighborhood section on page 1 of the form. It too asks for data about the neighborhood. When data is sparse, leaving it blank is not an option.

What I am doing is including data from the "Market area" but then including in the comments something like this:

The subject neighborhood is a small defined area. It is somewhat unique and I estimate about 20 homes in the "neighborhood"". None are currently listed and none have sold in the last year. . It is outside the City limits on small acreage and is not comparable to the homes on small city lots which are located within a mile. Nearby XXXX Valley is a superior area and not comparable. The "market area" for the subject would include XXXX which is a rural area 10 minutes away which includes competing properties. The data in the subject ""neighborhood" reflects the "market area".

What do you think?

 

[BRCJR]

I think you are not following the guidelines, per the GSE, for the MC Form.

Some do what you do and some do what the guidelines direct the Appraiser to do.

By having little to no data populated for the subject neighborhood that in itself tells something.

 

[Doug Wegener]

I think you are misunderstanding. In this case, since there are no sales and only 1 listing of a non-comparable property in the subject neighborhood, I fill in the 1004MC with Zeros which is GSE guidelines for the 1004 MC. But I am not asking about the 1004MC form.

I am referencing Page 1 of the 1004 form for the Neighborhood section.

 

[J Grant]

I think the neighborhood is the geographic area of where subject and competing properties are located , within boundaries the typical buyers consider the neighborhood ...schools, major roads, natural areas etc. Page one asks about general sales activity in the neighborhood , these properties might not compete with subject or be your comps, they represent the broader range of property sales and listing activity and predominant high and low and mid range properties of the neighborhood. (the MC form focuses on comps directly competitive to subject which are usually far fewer)

If you are in a sparsely populated neighborhood, you might have little activity to report.

 

[BRCJR]

I think you are misunderstanding. In this case, since there are no sales and only 1 listing of a non-comparable property in the subject neighborhood, I fill in the 1004MC with Zeros which is GSE guidelines for the 1004 MC. But I am not asking about the 1004MC form.

I am referencing Page 1 of the 1004 form for the Neighborhood section.

I did misunderstand you. Sorry...

 

[BROOKLYNVALUATION]

To me a neighborhood is a set of complementary land uses.

Includes residential, commericial, industrial, parks, schools, vacant land.

A market area, or several of them , are part of a neighborhood.

Market area for the 1004 MC are the properties which compete with the subject, and more specifically , properties which shares similar characteristics of the subject.

The 1004 MC could end up with properties that spread across multiple market areas, within a neighborhood. These are the properties that a potential buyer for the subject would consider as an alternative.

 

[Doug Wegener]

Neighborhood

I think the neighborhood is the geographic area of where subject and competing properties are located , within boundaries the typical buyers consider the neighborhood ...schools, major roads, natural areas etc. Page one asks about general sales activity in the neighborhood , these properties might not compete with subject or be your comps, they represent the broader range of property sales and listing activity and predominant high and low and mid range properties of the neighborhood. (the MC form focuses on comps directly competitive to subject which are usually far fewer)

If you are in a sparsely populated neighborhood, you might have little activity to report.

I think "Neighborhood" is sometimes not easy to define and reasonable people could disagree. In the case of my subject it is located just outside the city limits on 1.49 acres.
On the east the city limits would be the boundary of the "'neighborhood" since there are not properties on similar acreage and they are taxed higher in the city. On the north there is the I-5 freeway as a boundary so I would not consider the area to the north the same "neighborhood". 'defines Hillside area defines the other boundaries of the neighborhood. There are just not many homes in what I have defined as the neighborhood.I didn't count but I would guess about 20 homes in the "Neighborhood".

There are no sale in the last year, but that is not surprising given how I have defined the neighborhood. And there is only 1 listing.

If I use the neighborhood only I will have to leave the one-unit housing trends blank on page 1, and you know I will have a problem with underwriters on that

However, the "Market area" where the typical buyer would also consider properties does have sales I am using as my comparables. So as far as the trends section on page 1, it seems reasonable to use the data from my market area. But I do clearly label that it is from the "Market Area" and not the "neighborhood". This is also reinforced by the 1004 C which has 0 and says there is no data for the neighborhoood.

I don't see anything wrong with this but I am open to changing my mind.

 

[Peter LeQuire]

If you don't have enough data in the neighborhood, you have to get the 1004 neighborhood trends from somewhere else. You have to describe what information from what area you considered to develop a conclusion about those trends.

"Neighborhood" and "market area" are defined terms (The Dictionary of Real Estate Appraisal). If there are no or few "comparable properties" in the subject's "neighborhood" that information needs to come from a reasonable competing market area. For example, in this county, very large houses on larger than typical tracts compete with other large houses on larger tracts across the county: none may be in the "neighborhood". They may not be "comparable" (if you consider comparable to be very similar) but they are "competing".

If I understand DW's explanation, it sounds like it conforms with what one is supposed to do. There was an earlier thread (perhaps in April) in which a couple of very knowledgeable appraisers explained what FNMA expects, and that was essentially it.

(I don't consider that a neighborhood is necessarily homogenous <as a subdivision of conforming houses>: it may well include a mix of land uses, age, quality, etc that provide services to those residents of that area.)

 

[hastalavista]

To me a neighborhood is a set of complementary land uses.

Includes residential, commericial, industrial, parks, schools, vacant land.

A market area, or several of them , are part of a neighborhood.

Market area for the 1004 MC are the properties which compete with the subject, and more specifically , properties which shares similar characteristics of the subject.

The 1004 MC could end up with properties that spread across multiple market areas, within a neighborhood. These are the properties that a potential buyer for the subject would consider as an alternative.

Interesting.
I'd describe it exactly the opposite: The neighborhood may be within the subject's market area but the market area may extend outside of the neighborhood.
Sometimes, the two (neighborhood & market) are identified by the same boundaries.

My "neighborhood" may be the Lincoln Park Area. My competitive market may include Lincoln Park, Montana Row, and Euclid Park.

Market area for the 1004 MC are the properties which compete with the subject, and more specifically , properties which shares similar characteristics of the subject.

On this I agree.

The 1004 MC could end up with properties that spread across multiple market areas, within a neighborhood. These are the properties that a potential buyer for the subject would consider as an alternative.

(my bold)
I don't see the subject as having "multiple market areas". I see the subject as having its competitive market.
Homes in an area outside of the subject's competitive market that are similar to the subject in most respects except for the fact that someone who wants to purchase in the subject's market wouldn't consider purchasing in the other market, would be in a "competing market".

The 1004MC is not supposed to include homes from competing markets. It is, therefore, possible to have 6-comparables in one's grid, 3 having closed in the last 3-months, and having zero data to populate the 1004MC data fields. This could happen if I had 3 recent closed sales from a competing market, 1 closed sale from that same market 13-months ago, and two closed sales from my subject's market 13-months ago (the use of the 13-month old comparables would be to demonstrate the competitiveness of the other market).

I include the definitions of "neighborhood" and "market" (from the Dictionary of Real Estate Appraisal, AI) in my reports and then I describe the boundaries of each.


I think the most important thing to communicate to the client is this:
Here is where my subject competes (define the area; call it neighborhood or market); this is the area where I'm going to obtain my 1004MC data and where I'm going to look for comparables. If I don't find comparables within this market, I'm not just going to expand the area until I do find comaprables, I'm going to tell you that there are no recent comparables within the subject's market, and I'm going to go to a competing market to get current comparables to value the subject. If I go to a competing market, you are not going to see those sales in my 1004MC data. In fact, zero (or near-zero) data in the 1004MC is the compelling reason why I'm going outside of my subject's market and getting my comparables from a competing market.

 

[Doug Wegener]

That is my thinking exactly. Including the definitions from Dictionary of Real Estate Appraisal is a dandy idea.