Proper neighborhood and market area identification are vital to the appraisal process because the entire appraisal (including market analysis, highest and best use, and comparable selection) flows directly from neighborhood and market determination. In Portland, Oregon (and everywhere else for that matter), it is easy to confuse subdivisions, neighborhoods, and market areas when talking about real estate. This is because some neighborhoods and subdivisions are also market areas. In addition, sometimes the users of appraisals (for instance, Fannie Mae) can blur neighborhood and market area definitions by the way requirements are written. Perhaps we can help to clear up any confusion by explaining the differences between subdivisions, neighborhoods, and market area.
Subdivision: A subdivision is typically a tract of land that was divided into smaller pieces for individual sale and development. In Portland, the subdivision name is used in the legal description along with a lot and block. This makes it easy to identify the subdivision. Not all tracks of land are necessarily part of a subdivision.
Neighborhood: There are many definitions of neighborhoods in real estate. In general, a neighborhood is typically larger than a subdivision and includes complimentary land uses. A neighborhood usually exhibits a degree of homogeneity in the population and commonly includes a local market or grocery store and other features like parks, schools, and churches that compliment or support the residential properties. A neighborhood likely has more than one subdivision, but it will usually have similar property types, sizes, or income characteristics.
Market Area: A market area is a geographical area where many potential buyers of a particular property might search for a similar property. A market area can be larger or smaller than a neighborhood and, unlike neighborhoods, a market area can change based on the property type. For example, the typical buyers of a $100M mansion might search a much larger area for their desired property than would the buyers of a typical $100K suburban home.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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