308: Urban Properties

The valuation of properties in urban locations that are undergoing rehabilitation may also present some unique property valuation and underwriting issues.  For example, some lenders underwrite mortgages in urban areas on a block-by-block basis.  Block-by-block underwriting and appraisal analysis is acceptable in cases in which rehabilitation has started in the block in which the subject property is located (or in facing blocks that are visible to the property), but has not yet spread to the rest of the neighborhood.  This enables the appraiser and the lender's underwriter to place weight on the positive influences of the rehabilitation efforts.

To a large extent, a block-by-block analysis simply focuses on the appraiser's definition of the neighborhood.  Urban locations that are undergoing rehabilitation may involve relatively small neighborhoods (perhaps limited to a block or just a few blocks) because of the level of rehabilitation and buyer demand for properties that are being improved.  In such cases, it is appropriate for the appraiser to emphasize the sales of properties that are undergoing rehabilitation (or that have been rehabilitated) in the immediate neighborhood (which is the block in which the property is located or facing blocks that are visible to the property).  We expect the appraiser to demonstrate that local market conditions make block-by-block analysis appropriate, by illustrating that market evidence indicates that the rehabilitation of the properties in the neighborhood (or the general revitalization of the neighborhood) is a trend, not an isolated occurrence.  If there is a lack of truly comparable sales in the neighborhood -- either because of the level of rehabilitation or the relatively low number of sales transactions -- the appraiser may need to analyze and use as comparable sales not only less similar properties from the subject neighborhood, but also properties from competing neighborhoods.