On what basis should a neighborhood analysis identify the area subject to the same influences as the subject?
Correct Answer
D) The actions of typical buyers
Fannie Mae says the appraiser must perform a neighborhood analysis to identify the area subject to the same influences as the subject, based on the actions of typical buyers. Political or zoning lines may or may not match that area.
Why This Is the Correct Answer
Option D is correct because an appraiser must perform a neighborhood analysis to identify the area subject to the same influences as the subject, based on the actions of typical buyers. Where buyers treat properties as competing substitutes defines the relevant area.
Why the Other Options Are Wrong
Option A: The boundaries of the local school district
Option A uses school district boundaries. School lines can influence buyer choices, but they are an administrative boundary and may or may not match the area buyers treat as one market.
Option B: The lender’s preferred lending territory
Option B uses the lender's preferred lending territory. A lender's business footprint has no necessary connection to the area where typical buyers see properties as competing substitutes.
Option C: The municipal zoning map alone
Option C relies on the municipal zoning map alone. Zoning is one influence, but zoning lines may or may not coincide with the area subject to the same market influences as the subject.
Buyers draw the lines
Neighborhood boundaries are drawn where typical buyers stop treating homes as substitutes, not where a government map draws a line.
How to use: Use this phrase when asked what basis defines a neighborhood or market area.
Exam Tip
Prefer answers tied to market or buyer behavior over answers tied to a single administrative or institutional boundary.
Common Mistakes to Avoid
- -Using city or zoning lines as the neighborhood boundary without market support
- -Letting a lender's territory define the market area
- -Drawing boundaries without considering where buyers actually shop
Concept Deep Dive
Analysis
This question tests how neighborhood boundaries are identified. A neighborhood for appraisal purposes is the area subject to the same influences as the subject, and those influences show up in how typical buyers behave. Administrative lines may or may not match that area.
Background Knowledge
Neighborhood analysis identifies the physical, economic, governmental and social forces affecting a subject property. Boundaries may follow natural features, major roads, changes in land use or other factors, but they are drawn based on market behavior. Comparable sales are usually sought from within this area or from similar competing areas.
Real-World Application
An appraiser notices that buyers in one subdivision regularly also shop a similar subdivision across a city line, but avoid homes on the far side of a highway. She draws the neighborhood to include both subdivisions and stop at the highway.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
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