Neighborhood Information

The appraisal describes the property's neighborhood, providing at least the following information:

  • Location. The appraiser must indicate the area's level of population development. Specifically, the appraisal must label the property as (1) urban, (2) suburban or (3) rural.
  • Build up. The appraiser must indicate the neighborhood's level of development. Most appraisals offer three possibilities: (1) over 75%, (2) 25% to 75%, or (3) under 25%. Option 3 (under 25%) may be problematic in many situations, because rural properties can be more difficult to market.
  • Growth rate. The pace of development is measured with one of four levels: (1) "fully developed" means that there is little or no potential for future development; (2) "rapid" usually indicates a hot market; (3) "steady" areas are average; (4)" slow" applies to depressed areas with much potential but no action.
  • Property value movement. The appraiser must determine whether the property value is (1) increasing, (2) remaining stable, or (3) declining. A declining value often translates into automatic loan application rejection.
  • Demand and supply. This market indicator estimates whether (1) there is a shortage of marketable properties in the area, (2) there is a balance between the area's supply and demand, or (3) there is an oversupply of marketable properties in the area.
  • Marketing time. The appraiser will check the area's property listings and sales records to determine how long it is taking to sell properties: (1) under 3 months; (2) between 4-6 months' or (3) over 6 months. Option 3 (over 6 months) may be problematic as it indicates a slow market, which creates a drag on property prices.
  • Present land use. The appraiser must estimate how the neighborhood's parcels are currently improved and developed: (1) single-family, (2) properties with 2-4 units, (3) multi-family apartments, (4) commercial, (5) industrial, or (6) vacant.
  • Changes in land use. The appraiser must determine the probability of the area's land usage drastically changing in the future: (1) not likely, (2) likely, or (3) already taking place. If the report indicates options 2 or 3, some lenders may request more information to determine if those changes will affect the property's market value.
  • Predominant occupancy. The appraiser will estimate which type of occupancy is most prevalent in the area: (1) by the owner, (2) by tenants, or (3) mostly vacant. Option 3 (mostly vacant) can be bad news as it often indicates a depressed or declining neighborhood.
  • Price and age ranges. The appraiser determines the range of market values and building ages for comparable properties in the area. Obviously, the subject property's appraised value should fall within this range.
  • Neighborhood rating. The appraisal will analyze and grade the neighborhood according to its general features and other consumer-desirable elements. A negative rating could be problematic.
  • Description of favorable or unfavorable factors that will affect marketability. The appraiser must determine the demand for this property and provide brief reasons for that finding.
  • Neighborhood boundaries. The neighborhood's geographical boundaries must be described. The appraiser will usually identify the streets or landmarks that make up the property's boundary.

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