1. FOCUS ON NEIGHBORHOOD, COMMUNITY, AND MARKET Chapter 4

2. CHAPTER TERMS AND CONCEPTS Central town Comparative advantage Concentric rings Decline phase Density of use Development phase Economic base Export production Imperfect markets Land-use changes Land-use patterns Linkage Local production Market activity Marketing time Neighborhood Neighborhood boundary Neighborhood cycle Nodes 2

3. CHAPTER TERMS AND CONCEPTS Perfect market Price levels Price trends Renaissance phase Sales volume Special-function towns Stable phase Supply-demand balance Topography Town origin Transportation-service town 3

4. LEARNING OUTCOMES 1.Describe the neighborhood concept and how neighborhood boundaries are defined. 2.Explain how you can use information from a neighborhood study in the appraisal process. 3.Explain how economics influences community origins and growth. 4.Name four different physical patterns of community land use. 5.Define a perfect market and explain why real estate markets are not perfect. 6.Discuss the real estate market actions that you should study and why. 4

5. NEIGHBORHOOD Its Boundaries are Defined by: 5 Economic Benefits PHYSICAL FEATURES LEGAL BOUNDARIES

6. NEIGHBORHOOD PROFILE Location Development and Growth Rate Trend of Property Values Demand/Supply Exposure Time Marketing Time Predominant Occupancy Single-Family Housing Price and Age Present Land Uses Potential Land Use Changes 6

7. NEIGHBORHOOD QUALITY May be judged in terms of the needs of standards or its occupants Factors Affecting Quality  Physical Factors  Economic Factors  Social Factors  Political Factors 7

8. THE NEIGHBORHOOD CYCLE 1.Development Phase 2.Stable Phase 3.Decline 4.Renaissance 8

9. EVIDENCE OF NEIGHBORHOOD CHANGE Decline in Construction Degree of Maintenance in Existing Buildings Renovation Activity on Existing Buildings 9 Land-use changes are key signs of neighborhood change!

10. REASONS FOR STUDYING CHANGE Value of Property Is Influenced by Neighborhood Change (2004) The Neighborhood Study Suggests What Forces Are Affecting the Neighborhood and the Subject Property (2007-Same Property!) 10

11. WE USE NEIGHBORHOOD INFORMATION To Define the Geographic Area for Market Data Search To Estimate Highest and Best Use of the Property To Assist in the Comparable Sales Adjustments 11

12. RESIDENTIAL NEIGHBORHOOD Notice the Golf Course North Notice the Dry River on the West Notice the Main Streets on East and South 12

13. INDUSTRIAL DISTRICT Notice Dry River on North Notice Freeway on South Major Streets on East and West Borders 13

14. COMMUNITY ORIGINS Most American Town sites Were Selected Because of their Commercial Benefits Town site Selection Factors:  Availability of food & water  Natural defense against enemies  Religious reasons  Commercial benefits  Topography, raw resources, transportation systems in use. 14

15. TYPES OF TOWNS Central Town Transportation Service Town Special Function Town 15

16. THREE CENTRAL TOWNS 16 Figure 4-5 From Urban Land Use Planning, Copyright 1979 by Board of Trustees. Used with permission of the University of Illinois Press

17. LOCAL PRODUCTION Aircraft are built by Boeing in Seattle WA. Some planes are sold to local airlines. 17

18. EXPORT PRODUCTION Boeing Aircraft Sells Airplanes all Over the World and Brings in Money to the City, State and Nation. 18

19. MAJOR FACTORS IN LAND USE Topography A Town’s Origins Transportation System Existing Cities 19

20. CONCENTRIC RING GROWTH Typical Patterns of Land Use: Concentric Rings Dennis J. McKenzie and Richard M. Betts, The Essentials of Real Estate Economics, 6 th ed., Cengage Learning, Mason, Ohio, 2010 20

21. SEGMENTED RING GROWTH Segmented Rings Courtesy of the California Department of Real Estate 21

22. MODERN STAR SHAPED CITY The Modern Star Shaped City Dennis J. McKenzie and Richard M. Betts, The Essentials of Real Estate Economics, 6 th ed., Cengage Learning, Mason, Ohio, 2010 22

23. WHAT IS A MARKET? 23

24. 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 Very Minor Role in Pricing 24

25. IMPERFECT MARKETS 1.Few Sellers 2.Lack Knowledge 3.Not All Can Trade 4.Products Are Different 5.Can Move Product 6.Large, Expensive, Rarely Purchased 7.Government Has Many Rules 25

26. MARKET ANALYSIS & INTERPRETATION Appraisers study market activity for 3 reasons  What kind of data to use  Estimate a reasonable marketing time  Report on current marketing conditions 26

27. MARKET BEHAVIOR The three parts of market behavior  Price Levels  Price Trends  Level of Activity 27

28. SUMMARY 28 The concept of the neighborhood and its importance to appraisers was reviewed. The neighborhood can be defined in a number of ways. Economically, neighborhood boundaries are set by where the characteristics and benefits of a location change. The neighborhood’s quality depends on how well the neighborhood serves the land uses, and how the occupants maintain the neighborhood. An appraiser studies real estate markets to help interpret market data. Price levels are compared in order to estimate the price difference between properties of different sizes, ages, and so on. All this information helps the appraiser to correctly understand and adjust market data and to report on market trends and likely marketing time, as required for the appraisal report.