Using A 20 Mile Radius As The Neighborhood

[J Grant]

I think you got something out of the OP post different than what I did...or at least what is important. I'm less concerned with use of term neighborhood , then a client dictating to an appraiser where they can and can not search for comps.

However, if an appraiser does a poor job of searching for comps and can not define what is a market area vs a neighborhood, blaming the client is after the fact.

 

[Mike Kennedy]

On April 1, Freddie Mac issued Bulletin 2014-05, and on March 25, Fannie Mae issued Lender Letter LL-2014-02, in response to directives from the FHFA to clarify certain requirements related to appraisals for properties located in rural areas. In the clarifying documents, Fannie Mae and Freddie Mac state that they do not require the use of third-party vendors such as appraisal management companies to order appraisals or to comply with requirements that the mortgage production function and the appraisal ordering and quality assurance functions remain separate. In addition, both Fannie Mae and Freddie Mac provide a small lender exception to the separation requirement. The guidance documents also state that a residential property in a market that contains properties or land uses that are non-residential in nature, is not necessarily ineligible for sale to Fannie Mae or Freddie Mac. Both entities assert that they will purchase a mortgage secured by a property that is unique or may not conform to its neighborhood, provided an appraiser is able to evaluate and report on how the characteristics of the market area and unique property features affect the value and the marketability of the subject property. The guidance documents also advise sellers that in areas with less real estate activity, such as rural market areas, appraisers may, with documented support, use comparable sales that are older than 12 months, or that are a considerable distance from the subject property or not similar to the subject property.

 

[Eli]

It's called market segmentation. As an extreme example consider a house on 20 acres in a 95% developed urban area that is 70 % larger in GLA to the predominant home in the neighborhood boundaries and 110 times larger in site size to the predominant home in the neighborhood.

Where will it's competition likely be? Inside or outside the neighborhood boundaries?

The neighborhood boundaries being identified by CU bothers me. Census tract won't do it in many areas. It'll jump boundaries is what it will do in some areas, but maybe it can be fine tuned. If not, then the appraiser will just have to explain more.

 

[Tom4value]

My experience has told me a lender saying, "you can't do that" is code for, "we can't sell the loan with this appraisal". That, of course, is not your problem. I do, however, agree that a neighborhood would be hard to argue is a 20 mile radius. As someone pointed out, there is a difference between neighborhood and market area. I would describe what the neighborhood is and then explain that due to the uniqueness of the subject, you went outside the neighborhood for all comps into the market area for this type of property.

 

[Noreen]

And then they tell you your market conditions report should also be your neighborhood....

We have rural areas here and looking at the assignments, I feel your pain. I'm with Terrel, start with the school district ( shared schools??) But nothing says that your sales ( True Comparables may be a needle in a hay stack) must be included in your neighborhood. for the berm, I'd go back ( search the county and abutting county if you have too) as far as I had to to get one, proves that the market is rare for that style/construction, even if it's five years.... Best of Luck, update us on this beast!!

 

[residentialguy]

then a client dictating to an appraiser where they can and can not search for comps

Please post where OP said that the client dictated where they can and can not search for comps...then this will be cleared up. All I read was that OP can't state that the neighborhood can't expand 20 miles and include multiple townships, which is correct.

 

[Restrain]

Argument seems to be 'neighborhood' vs 'market area'. I will cite a specific instance, being a home with a hanger in a private airpark on the north side of the DFW area. The 'neighborhood' is what is transpiring around the airpark and the airpark itself, that is, what influences it: growth, schools, employment, etc.

The 'market area' however was the entire suburban area around DFW for similar airparks (yes there are a bunch as DFW is a major air hub and pilots live in the airparks and fly into the airports to go to work). So a potential buyer would be considering any number of potential airparks. Thus the explanation of why the 'market area' was considerably larger than the 'neighborhood' . The former burger-flipper UW came back with 'HUH?' When the comps were 60 miles away. After a 'did you read the report' discussion, the UW agreed with the report and the lender was happy.

The point I am making is that in any appraisal of a unique property or property in a thinly populated area, explain, explain, explain.

A previous poster showed a photo of a river, one side being NY, one side being PA, and indicating that both sides could be in the neighborhood/market for riverfront homes. Yes, but...there may be tax considerations, etc that would affect one side differently from the other, again which would have to be discussed. As a result, if the home was, say, on the PA side, buyers may not be interested in buying on the NY side due to tax and other issues. So while the 'neighborhood' might include both sides of the river, the 'market area' may exclude homes on the NY side because of these issues.

Just some thoughts.

 

[J Grant]

Please post where OP said that the client dictated where they can and can not search for comps...then this will be cleared up. All I read was that OP can't state that the neighborhood can't expand 20 miles and include multiple townships, which is correct.

I have used a 20 mile radius from the subject as my neighborhood. Bank is telling me that I can't do that and that I have to use a Township or partial area of the County as my designated neighborhood. Any thoughts?

Above from OP post, sounds like the client is telling him where to search (by saying he can't "do that".)..but if all bank is saying is he must use a townshop or county as designated neighborhood...can the client dictate what the designated neighborhood should be in his description? NO, so I see your point!

 

[Mike Garrett RAA]

It is what it is and you can't make chicken soup out of chicken poop. Well, I guess you could but who would want to eat it.

I consider the neighborhood to be a group of residences influenced by certain things such as physical boundaries, political identity, master plans, school districts, etc. These are often identified neighborhood name. Sometimes there might be several different subdivisions within a neighborhood.

My brother, an SRA, taught me to use the grade school as a search tool. It often will identify properties in more than one subdivision that actually defines the neighborhood. It's my opinion Marketing Area, such as MLS defined areas, more accurately define what a buyer might find as "competing properties" and, therefore, can and should be used to complete the MC addendum.

 

[Meandering]

A previous poster showed a photo of a river, one side being NY, one side being PA, and indicating that both sides could be in the neighborhood/market for riverfront homes. Yes, but...there may be tax considerations, etc that would affect one side differently from the other, again which would have to be discussed. As a result, if the home was, say, on the PA side, buyers may not be interested in buying on the NY side due to tax and other issues. So while the 'neighborhood' might include both sides of the river, the 'market area' may exclude homes on the NY side because of these issues.

Just some thoughts.

Not just taxes but, access issues, stores, services, gas stations and everything else that goes with a house in the woods, versus a house near civilization.

Much to consider and then add additional layers of consideration for out-of-area QC people who won't believe the best access to a dead in road in one state is from a different state.