Suburban Inside Urban City Limits – Really?
Pre-filled template with ‘Suburban’ already checked…
Another appraisal report was delivered by a homing pigeon to my windowsill the other day. After leaving a ‘deposit’ on the sill that kind of matches the goop I observed in the report, off it went.
The subject property is within a built-up neighborhood area within the largest city in this particular area; it is within city limits. The neighborhood was developed in the 1950’s and 60’s. It is fully built out (i.e., all subdivided lots are developed) and has a couple of neighborhood parks. Population density is similar to other areas within the city. The ‘downtown’ area is a short drive from the neighborhood, and other shopping districts are closer. The city is a fully functioning modern area, with all typical urban amenities, schools, public services, etc.
On page 1 of the GSE report forms, we are asked to indicate the Neighborhood Characteristics, by using the checkboxes, and then below those we write comments about the Neighborhood.
The first line is for Location (of the Neighborhood, not where it is located in the region, state, nation or world)… as [ ] Urban [ ] Suburban [ ] Rural
The appraiser in this report has [X] Suburban checked. Why? I just described above the neighborhood characteristics as being Urban, within a city. The appraiser did also, as you will see below.
The Dictionary of Real Estate Appraisal, 4th Ed, defines ‘Urban’ as:
“…a mature neighborhood with atypically found within city limits or a neighborhood commonly identified with a city.”
‘Suburban’ is defined as:
“…a neighborhood that contains complimentary properties with less concentrated population than is typically found in an urban neighborhood.”
In the FNMA Selling Guide, this information is provided:
“Fannie Mae requires the appraiser to perform an objective neighborhood analysis by identifying neighborhood boundaries, neighborhood characteristics, and the factors that affect the value and marketability of properties in the neighborhood.”
When an appraiser incorrectly checks a Characteristic box, this makes the report immediately questionable, less reliable, and certainly not objective analysis in terms of the appraiser’s responsibility.
Continuing down the report, we come to the Neighborhood Description, where we can include general or specific comments.
In this report, the appraiser wrote “This is a typical residential neighborhood within the city limits of XYZ.” Additional comments describe the lot sizes, types of additional residential housing, and commercial uses.
The appraiser correctly described the URBAN neighborhood. Why, then, was the ‘Suburban’ box checked on the form?
I can’t answer ‘Why.’
I can speculate that perhaps the appraiser does not understand the use of this part of the form, perhaps believes that it relates to ‘someplace farther away from’ or relative to ‘someplace else’ like a bigger city in the region, or a possible culprit… the report was started using a pre-filled Template with ‘Suburban’ already checked, and no proof-reading was done to verify this detail. Maybe the form was typed by a 3rd party, and not reviewed by the appraiser for accuracy? I don’t know which of these speculations is the actual one.
It’s real easy to blow through the checkboxes on the GSE forms. But they have real, and important, meanings in terms of loan underwriting. They may also affect the number of ‘correction notices’ an appraiser receives if errors are found, or box checks are questioned. These are a definite irritation to everyone involved.
Let’s be careful out there!
The embedded PDF below is my gift to you this holiday season. It will help you understand Locational Characteristics.