Comments on: Market Action and Reaction

By: kash

kash — Mon, 27 Jun 2016 22:33:58 +0000

From: The Appraisal of Real Estate – Twelfth Edition – Appraisal Institute

Neighborhood Bounderies: See Market Area Addendum

**Market Area Addendum**

The defined geographic area in which the subject property competes for the attentions of market participants; the term broadly defines an area containing diverse land uses.

Social, economic, governmental, and environmental forces influence property values in the vicinity of a subject property. As a result, they affect the value of the subject property. Therefore, to conduct a thorough analysis, the appraiser must delineate the boundaries of the area of influence. Although physical boundaries may be drawn, the most important boundaries are those that identify factors influencing property values.

The area of influence, commonly called a neighborhood, can be defined as a group of complementary land uses. A residential neighborhood, for example, may contain single-family homes and commercial properties that provide services for local residents. A district, on the other hand, has one predominant land use. Districts are commonly composed of apartments or commercial, industrial, or agricultural properties. In broader terms, appraisers analyze the market area for the attentions of buyers and sellers in the real estate market. A market area can encompass one or more neighborhoods and/or districts.

The term market area may be more useful than either neighborhood or district for several reasons:
Using the umbrella term market area avoids the confusing and negative implications of the other terms.

**A market area can include neighborhoods, districts, and combinations of both.**

Understanding how real estate markets work is essential in almost every step of the valuation process. The term market area – more than the terms neighborhood and district – refers to an area where market participants live and work. The term also refers to areas on which appraisers focus when analyzing value influences.

By: Sam

Sam — Mon, 27 Jun 2016 22:14:43 +0000

Great article Charles!

A neighborhood can be bound by geographical obstructions, economic, governmental & tax districts as well as property designs or types and uses. It really boils down to the principle of substitution. If a buyer can’t have this one, what else would he consider?

In my area, a neighborhood can be school districts. In other cases, it’s a specific exclusive subdivision. It can also be all water front properties regardless of the county or school district. People who can afford a water front home don’t really care about the schools as they can afford private education.

In commercial, it can be the city, county, state or a whole region.

By: Baggins - Great article Don.

Baggins - Great article Don. — Mon, 27 Jun 2016 15:53:17 +0000

In reply to Bill Johnson.

Bill, just helpful FYI. I’ve found success in posting my final research set within the report, with accompanying 90 day segment and larger less filtered segment. Usually takes 1 or 2 addenda pages to explain, and 1-5 variable upload pages to present. But then all those properties to be possibly reconsidered are already plastered in the report and you’ve proved you’ve already at least considered those wide ranges of data. Takes the wind out of those comp reconsideration requests nearly every time. Just post the final research data within the report. I like 1 line presentations w/ key features, and usually MLS will have some sort of brief 1 liner presentation that is easy to copy paste or download upload into reports.

By: Bill Johnson

Bill Johnson — Mon, 27 Jun 2016 15:44:18 +0000

Not to worry Charles the AMC’s will tell us exactly what they want. The neighborhood section will always match the MC form, right? Or you can just take the agents word for it as they always correctly identify the neighborhood (?). Heck, the easiest way per our government and their CU platform is to just use the census track for every property. Don’t forget of course the AMCs want a farm list of addresses that were within your neighborhood search boundaries, that you did not use. Good luck defining a large neighborhood (zip code, city, county) and giving the AMC a list of 500+ properties that they could use against you. The system is broken as many appraisers define the market area just inside the furthest location of their comparable. They tell me why define the neighborhood and include hundreds of properties that the lender and AMC could use against them, when the comps come from within the immediate PUD (a few streets). Why define a large market area when that condo property has data from a few blocks away? What we do today is defensive appraising where it seems they are more concerned with what we didn’t do (please look at these 5 additional sales) as compared to what we did do.

By: Baggins - Great article Don.

Baggins - Great article Don. — Mon, 27 Jun 2016 15:32:36 +0000

When a single individual buyer ponies up cash over MV, they set the stage for everyone else to follow. The appraisal theoretical question which remains unanswered is how many instances of such higher purchase record legitimately sets the market for everyone else purchasing and selling, and all the inevitable refinances which follow. Buyers and sellers set the market. You can’t quantify inept agency, or fast and loose purchasing activity. The err in thinking is that we presume buyers and sellers will correct the market via price, negotiation, non acceptance of available rising price listings, etc. The truth is people are struggling and competing for housing nationally with every motivation possible. The consumer base is extended too much credit and have shown a verifiable track record they may not or will not be capable of price self correction through variable purchasing restraint. In the end market correction happens because all bubbles must pop. Entire regional markets are inevitably intertwined by way of commonality of 98% LTV credit availability as that relates to availability of income and housing quantity. Please don’t ask me what that measurement is, I don’t know. If we want stable markets as a group we need more equity, less credit, and more stringent borrowing criteria. Like don’t just bring it back to 80/20, move all GSE lending to 60/40 max LTV requirement, and watch borrowers suddenly care about how much they’re borrowing. People willingly borrow to the moon without reservation. Ask them to furnish that in cash, and you get an entirely different sort of attention to caution and the benefit of price correction. Per the article, the one guy paid $8k over, and the market moved upward as a result. The duty of advocacy based agency requires the next listing agent to try and follow that. When buyers are extended credit freely, they will fail to correct the market. Appraisers are supposed to be that stopgap, but with 98% LTV available everywhere, we usually cannot predict or position ourselves to say the buyers market will not follow. If a buyer has to compete with even one other buyer, throw caution out the window and presume the higher price will prevail.