Urban… or Suburban?

Urban or Suburban

Difference between Urban and Suburban locations


Last week, I asked your input regarding why in many cases appraisers check suburban in the Neighborhood Characteristics when often the subject’s location is actually an Urban area (at least from the definitions perspective below). The example I used was from an actual report. The subject property is located within a city of 90,000 population. It has typical urban services, including police and fire protection, utility water deliver and sewer service. It is surrounded by competing subdivisions, nearby shopping, colleges, city administrative offices and business buildings. It is also close to Interstate 5, parks, etc. There is undeveloped open space nearby. Built-up is shown to be over 75%. But the subject neighborhood is characterized as Suburban!

I asked for input, and have received several dozen responses, which I’ve read, and truly appreciate getting.

Several appraisers asked for ‘my’ definition of Urban, Suburban and Rural. So before going further, let’s get that out.

These are not ‘my’ definitions. These are in The Dictionary of Real Estate Appraisal – 4th Edition, published by the Appraisal Institute. They have recently released the 6th Edition, which I don’t have. If any of you have that version, please compare and let me know if the definition revision has changed.

Urban – Describes a mature neighborhood with a concentration of population typically found within city limits or a neighborhood commonly identified with a city.

Suburban – Describes a neighborhood that contains complementary properties with less concentrated population than is typically found in an urban neighborhood.

Rural – Pertaining to the country as opposed to urban or suburban; land under an agricultural use; areas that exhibit relatively slow growth with less than 25% development.

Most of the responses I received had the viewpoint that Urban is only in downtown cores with high rise buildings. One appraiser stated that to be Urban, an area must have ‘industrial’ facilities for jobs in the area. If not, Suburban or Rural. Others said that even if a concentration of population surrounds the subject site, the subject neighborhood could be designated as Suburban, despite its density being similar to the urban density. This happens in metro areas where densely populated unincorporated areas are within the surrounding significant incorporated metro area with similar density.

Note that none of the definitions mention those perceived appraiser factors. In fact, the availability of ‘services’ is not mentioned, which is how many appraisers and others may define these three areas.

The definitions above all relate to population density. They are pretty simple to understand. Only Rural speaks to perceived distance (i.e., in the country) from a core urban or metro area; Urban and Suburban do not.

The check boxes for Built-Up also relate to population density.

One point I was trying to make last week is that Urban can be anywhere, not just in a core metro area, as some appraisers believe. It means that if population density of the subject’s neighborhood is similar to the population density area surrounding the subject, it can correctly be classified as Urban. It also means that the small cities or towns out in the boonies across this country can also be classified correctly as Urban, if that’s where the subject property is located.

The same population density aspect applies to Suburban and Rural.

Many appraisers related the ‘ring’ approach, which I can agree with. That means the central core of the rings is Urban. The next ring out with lower population density can be classified as Suburban. The farthest ring out is Rural, which has the lowest population. The subject will be in one of those rings, or close to a real or imaginary boundary between two rings, which is the challenge for appraisers.

So that brings us back to the ‘form’ check boxes, and indirectly, UAD. UAD is a game changer for all of us. UAD is big data on steroids. UAD is checking EVERY report we do. It looks for errors and inconsistencies, either from the Appraiser Quality Monitoring electronic review, or from the voluntary Collateral Underwriter electronic review.

The check boxes in the Neighborhood section are actually asking for characteristics about the subject’s NEIGHBORHOOD that you have described in the comment sections below those check boxes. The check boxes are not asking for ‘how does it compare to somewhere else.’ You could, if you wanted, describe the difference between the subject’s defined area, and the others, elsewhere in the report.

This is the other issue that was most prominent in the responses I’ve received. For years, appraisers have thought about, compared and appraised the subject ‘relative to’ something else, rather than ‘absolutely’ by itself. I realize the form itself has driven this perception.

That’s the game changer of UAD. And actually, truth be told, that’s the way Fannie/Freddie imagined reports should be done from way back when… Except that they never properly informed or taught appraisers about this. So without clear direction, appraisers have gone off on tangents quite often. UAD is forcing ‘us’ to be more consistent.

UAD asks for specifics on properties. UAD expects those specifics to remain the same into the future until some documented change happens with the property. UAD also means that appraisers absolutely should take time to really think about responses on the blasted forms.

The other aspect of this situation is, for years, underwriters and others upstream from appraisers have forced appraisers into regimented reporting results concerning the neighborhood characteristics. It’s what I call the “One Mile Rule.” This rule no longer exists. But many surrounding us (and even appraisers) have not gotten the message.

The rule was simplistic: Urban comps must be no farther away from the subject than 1 mile; Suburban up to 5 miles; and Rural could be nearly unlimited. With UAD, Fannie finally realized that this “rule” no longer makes sense. In fact, this rule is not enforced when Collateral Underwriter (associated with UAD) finds and spits out up to 20 sales that they incorrectly term ‘comparables.’

Appraisers have been checking the Location box based on comp location, not due to the actual neighborhood characteristics.

And let’s not forget the unwarranted ‘ban’ on using the Rural checkbox by many lenders up until recently. They were afraid it meant ‘farming’ which does not in many cases. They thought they couldn’t make a loan on a property with Rural location checked.

Fannie also has done away with the 10%, 15%, and 25% adjustment guidelines. For basically the same reasons why the “One Mile Rule” has been abandoned.

Here’s what I suggest: Adopt the definitions shown above. Put those into your reports in a section for Neighborhood Characteristics. Then add a statement that your checkbox entries on form page 1 reflect the characteristics/population density (i.e., Built-Up) you observed IN THE SUBJECT’S NEIGHBORHOOD, not relative to anywhere else in the world. Add wording to say that the ‘One Mile Rule’ is not valid any longer. Then when you get the ‘stip’ that implores you to adhere to ‘their’ rule, point the complainer to that section in your report.

You need to tell report readers why neighborhood characteristic boxes are checked. Don’t let someone else in a multi-story downtown Manhattan office, or the AMC clerk 5 states away, dictate to you what they think the neighborhood should be.

This is how ‘we’ take back our responsibility to do what ‘we’ should have been doing all along, while traipsing down the primrose path we call appraising.

On a more light-hearted note, I have attached a sheet you might want to print and hang on your office wall.

And two appraisers provided a different description of what Rural / Suburban / Urban means, which I’ve embellished a bit:

Rural – where cows gleefully reside and chew their cud with few distractions, except for flies

Suburban – where rats hang out, and rummage through humanity’s droppings

Urban – where rats, some with well-known names, and as big as cows have set up colonies

Dave Towne
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on e-AppraisersDirectory.com

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8 Responses

  1. Rick Hemry on Facebook Rick Hemry on Facebook says:

    One of my pet peeves. I live in the Dallas area. I see appraisals in Plano, Texas, with a population over 250,000, listed as suburban. Some area appraisers think that anything not in Dallas or Fort Worth is suburban.

  2. Mike Ford Mike Ford says:

    LOL! Great article Dave.

    Long ago I read in a FNMA or Harrison Guide, (can’t remember which) that an urban area was one in which the population was 25,000 or more. Maybe I read it in  California Coastal Commission Plans or City Planners course materials when I was studying to take their test a century or so ago. IF that were a valid standard today then pretty much everything in California would be urban.

    In Metropolitan Los Angeles, as well as the (separate) San Fernando Valley area of the City of Los Angeles we DO have primarily residential neighborhoods with no  cross traffic or commercial influences. IF my boundary is within a definable neighborhood (vs competitive market area) like this, I call it suburban. Examples; Encino South of Ventura Blvd.. Beverlywood and a host of others. The “character” is suburban. I would not argue with anyone that took the broader view that they are urban.

    Can kids reasonably safely play in the streets? Not definitive by itself, but a possible indicator.

    We also have easily defined areas that are more urban in character; high rise residential dwellings; commercial corridors predominating, strip retail and or offices nearby (very nearby).

    I don’t rely on the box so much as an honest, non boilerplate description of the competitive market area that I have defined; and yes, I have often included quoted AI text on the difference between neighborhood and competitive market areas.

    Descriptions change just as “neighborhoods” change. A premium defined neighborhood is often ‘annexed’ by an adjacent area being built out that wants to capitalize on the recognized premium area. Old timers may know the difference, but to NEW BUYERS its the same.

    Webster says:
    Simple Definition of urban: of or relating to cities and the people who live in them

    CloseStyle: MLA APA Chicago


    Full Definition of urban:  of, relating to, characteristic of, or constituting a city

    Real concise, right?

  3. Avatar Tom D says:

    i live in a “suburban” area inside of a very large urban city.  it’s not in the ghetto, so feels like suburban when i get back to my urban row house.

  4. Avatar jf says:

    Unfortunately there is no hard and fast definition of what actually constitutes an urban neighborhood. The definition above simply states a developed neighborhood with a population typical of a city or in a neighborhood identified with a city. Not very precise for describing the characteristics of a neighborhood. Based on this definition anything within city limits would be considered urban. The definition of suburban is bound to the definition of urban: complementary uses with population density less than an urban area. Based on the definition of urban this means suburban must be outside city limits and have a lower population density. Only rural defines itself by the amount of development: less than 25%. However, if your reader is to understand the appraisal and what you mean by these characteristics, I think we need to dig a little deeper into the neighborhood analysis.

    First, I think population density is a critical factor. When your reader sees urban, are they thinking of New York City with a population density of 18,640 people per square mile, or are they thinking Nashville with a population density of 1,301 people per square mile. Based on the above definition, both of these have neighborhoods with populations typical of a city. Which would your reader think of as urban?

    Second, I don’t think the population of a city is the determining factor. Certainly there are neighborhoods within city limits that can still be characterized as suburban. Even in New York there will be neighborhoods that could be characterized as suburban rather than urban. Where I live there are high-density neighborhoods that are classified as urban, but there are also very low-density neighborhoods with homes on acreage around a golf course, all within city limits, and I would not classify this urban even though the population of the city is over 300,000.

    Third, I think the present land uses are a primary factor. If I have a well-defined neighborhood boundary that is nearly 100% residential even though it is within city limits, I think it is best characterized as suburban provided it is not high-density residential such as 2-4 unit and multi-family.

    These definitions are somewhat lacking given the urban/suburban sprawl that has characterized many cities in the US. I think you need to keep your reader in mind when choosing this characteristic. Take for instance a nearby city where I live. It has incorporated huge swaths of agricultural land for future development of light industrial and residential neighborhoods. A new residential neighborhood is under development in this area, and it is several miles from the city center, adjacent to agricultural uses and small homes on acreage. By the definitions above, being within city limits, it should be urban, but realistically it is a suburban neighborhood surrounded by rural uses.

    So, without a hard and fast definition which would best incorporate population density and land uses percentages, stick to reporting your neighborhood in a way that best describes to your reader what the neighborhood is like.

  5. Avatar John Dorie says:

    Most of the Departments of the Federal Government offer definitions of Urban / Suburban / Rural. The Department of Agriculture even has FIVE different, but similar definitions. I use the US Census Bureau definition as it specifically states the population density. (Population density is found at the Census Bureau website.) Of course, I reference in the report that the Census Bureau is the source of the rating of Urban or Suburban.As this relates to Dallas versus Plano, parts, or neighborhoods, of each city are Urban and parts are Suburban, and Dallas even has a few neighborhoods in the southeast area that are Rural. I teach in my CE classes to always use a definition from a reliable source and not your opinion. I challenge someone to argue with the government’s definition. KEEP IT SIMPLE!

  6. I like your idea of sourcing your definition and have no problem with it. As for using government definitions go to my website where I have cited a number of them Specifically Market Value definitions (MV and FMV). When a government agency cannot define a term without ambiguity, they lose their credibility as a reliable source. http://mfford.com/html/value_definitions.html Government regulations (including tax laws) are specifically written TO be arguable.”Definition of urban: of, relating to, characteristic of, or constituting a city https://www.merriam-webster.com/dictionary/urban” Not a very helpful description for real estate appraisal, is it?


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Urban… or Suburban?

by Dave Towne time to read: 5 min