Focus on Neighborhood, Community, and Market Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 4

STUDENT LEARNING OUTCOMES Describe the neighborhood concept and how neighborhood boundaries are defined. Explain how you can use information from a neighborhood study in the appraisal process. Explain how economics influence community origins and growth. Name four different physical patterns of community land use. Define a perfect market and explain why real estate markets are not perfect. Discuss the real estate market actions that you should study and why. 2 Page 84 © 2015 OnCourse Learning

4.1 NEIGHBORHOOD ANALYSIS Defining the neighborhood: Cluster of properties of relatively similar land use and value Complementary land uses Congruous grouping of inhabitants, buildings, and/or business enterprises Termed “District” for non-residential groupings Shared identity can be economic, physical and/or social in nature (i.e. “linkage”) 3 Page 85 © 2015 OnCourse Learning

NEIGHBORHOOD BOUNDARIES Boundaries can be defined by: 4 Page 86 © 2015 OnCourse Learning Economic Factors Physical Features Legal Boundaries

NEIGHBORHOOD BOUNDARIES Example of Physical Boundaries, set by: River along the North Freeway along the South Major Streets along the East and West 5 Page 86 © 2015 OnCourse Learning

NEIGHBORHOOD PROFILE Location (Urban, Suburban or Rural?) Development and Growth Rate Property Value Trends Demand & Supply Exposure / Marketing Times Predominant Occupancies Predominant Prices and Ages Present Land Uses (add up to 100%) Potential Land Use Changes (Evidenced by?) 6 Page 87 © 2015 OnCourse Learning See URAR (Page 1) and/or Market Conditions Addendum

NEIGHBORHOOD PROFILE (Con’t.) Describe Boundaries Define and explain if market data comes from outside of neighborhood boundary Neighborhood Description Describe immediate area in concise terms relevant to property being appraised Market Conditions Discuss issues that are particularly important to the analysis of trends in the subject market 7 Page 88 © 2015 OnCourse Learning

FACTORS AFFECTING NEIGHBORHOOD QUALITY Best judged in terms of the needs and standards of its occupants Four Major Factors affecting Neighborhood Quality Physical / Locational Factors Economic Factors Social Factors Political 8 Page 89 © 2015 OnCourse Learning

NEIGHBORHOODS AND CHANGE The Neighborhood Cycle 1.Development Phase 2.Stable Phase 3.Decline Phase 4.Renaissance (Redevelopment) Phase 9 Page 91 © 2015 OnCourse Learning

EVIDENCE OF NEIGHBORHOOD CHANGE Decline in Construction Degree of Building Maintenance Renovation/Remodeling Activity 10 Page 92 © 2015 OnCourse Learning Land-use changes are key signs!

BAROMETERS OF CHANGE Neighborhoods are studied to understand how and why a property’s value may change: A property’s value is strongly influenced by the neighborhood immediately around it Neighborhoods are always changing Changes both within and around the fringes of a neighborhood should be considered 11 Page 92 © 2015 OnCourse Learning

BAROMETERS OF CHANGE (Con’t.) Figure 4.4 Illustration of the importance of looking beyond the immediate area around the subject property 12 Page 95 © 2015 OnCourse Learning

USING NEIGHBORHOOD INFORMATION 1.Use To Define the Geographic Area for the Market Data Search 2.Use to assist in defining the Highest and Best Use of the Property 3.The Neighborhood is the primary source of Comparable Sales and the Support for Adjustments Helps discover the property characteristics that are important to buyers and sellers in that location 13 Page 95 © 2015 OnCourse Learning

4.2 UNDERSTANDING COMMUNITIES AND HOW THEY GROW Community Origins and Growth Town Site Selection Factors: Availability of food & water Natural defense against enemies Topography Availability of Raw Resources Transportation systems in use at time of origin 14 Page 97 © 2015 OnCourse Learning

TYPES OF TOWNS Central Town (Fig. 4.5) Transportation Service Town (See Fig. 4.6) Special Function Town (e.g. Washington, D.C.) 15 Page 98 © 2015 OnCourse Learning

ECONOMIC GROWTH Local Production Boeing aircraft are built in Everett, 25 miles north of Seattle, Washington 16 Page 100 © 2015 OnCourse Learning Some are sold to local airlines

ECONOMIC GROWTH (Con’t.) Export Production Boeing also sells aircraft all over the world; which brings money to the region, state and nation. 17 Page 100 © 2015 OnCourse Learning Boeing’s export production forms the economic base for the Seattle region

FACTORS IN LAND-USE PATTERNS Topography   Town’s Origin Transportation Systems   Major Existing Uses 18 Page 101 © 2015 OnCourse Learning

TYPICAL PATTERNS Figure 4.8: Concentric Rings 19 Page 102 © 2015 OnCourse Learning

TYPICAL PATTERNS (Con’t.) Figure 4.9: Segmented Rings 20 Page 103 © 2015 OnCourse Learning

TYPICAL PATTERNS (Con’t.) Figure 4.10: Modern Star-Shaped City 21 Page 104 © 2015 OnCourse Learning

USING COMMUNITY INFORMATION 1.Some Community Forces & Trends Affect Trends in the Neighborhood 2.Some Community Trends Can Affect All Real Estate Markets in the Community Studying area origins and patterns of growth helps you understand factors affecting the subject and neighborhood 22 Page 104 © 2015 OnCourse Learning

4.3 REAL ESTATE MARKETS What is a Market? 23 Page 106 © 2015 OnCourse Learning Any Place Where Buyers & Sellers Meet to Exchange Goods or Services

THE PERFECT MARKET 1.There Are Numerous Buyers and Sellers 2.All Parties Are Knowledgeable 3.All Parties Are Free to Trade or Not Trade 4.All Products Are Similar and Interchangeable 5.All Products May be Transported to Better Markets 6.Items Are Small, Inexpensive, and Frequently Purchased 7.The Government plays a Minor Role in Pricing 24 Page 106 © 2015 OnCourse Learning

IMPERFECT MARKETS 1.Few Sellers 2.Lack Knowledge 3.Not All Can Trade 4.Products Are Different 5.Can’t Move Product 6.Large, Expensive, Rarely Purchased 7.Government Has Many Rules Real Estate Markets Are Not Perfect… 25 Page 107 © 2015 OnCourse Learning

MARKET ANALYSIS & INTERPRETATION Appraisers study market activity for three reasons… To help decide what kind of data to use To estimate a Reasonable Marketing Time To report on current Market Conditions and Trends affecting value (perceptions) 26 Page 108 © 2015 OnCourse Learning

MARKET BEHAVIOR Market Behavior can be divided into three parts… Price Levels Price Movements / Trends Level of Activity / Sales Volume 27 Page 108 © 2015 OnCourse Learning

UNUSUAL PATTERNS OF ACTIVITY 28 Page 111 © 2015 OnCourse Learning Increasing Market (Upward Pressure) : Potential buyers (lookers) increase; may be combined with a decreased number of listings. Could signal upward price movement Stable or Balanced Market : Evidenced by smoothly moving or gradual price changes. Declining (Transitional or Troubled) Markets : Evidenced by erratic price movements – typically downward in direction overall.

CHAPTER SUMMARY Concept of the Neighborhood and its importance to appraisers The ways a Neighborhood can be defined are varied Neighborhood Cycle (Four Stages) A Neighborhood’s quality can depend on land uses and maintenance levels. 29 Page 111 © 2015 OnCourse Learning

CHAPTER SUMMARY (Con’t.) The study of neighborhoods and markets helps one understand the forces affecting values Importance of knowing community origins and growth patterns Perfect and Imperfect Markets Interpretations of Market Activity 30 Page 112 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS Central TownMarket Activity Comparative AdvantageMarketing Time Concentric RingsNeighborhood Decline PhaseNeighborhood Boundary Development PhaseNeighborhood Cycle Economic PhaseNodes Export ProductionPerfect Market Imperfect MarketsPrice Levels Land-Use PatternsPrice Trends LinkageRenaissance Phase Local ProductionSales Volume 31 Page 113 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS Special-Function TownTopography Stable PhaseTown Origin Supply-Demand BalanceTransportation-Service Town 32 Page 113 © 2015 OnCourse Learning