USPAP and The Neighborhood

USPAP and the neighborhood.  This may be hard to understand.  USPAP does not even use the word neighborhood in Standards 1 and 2.  So how can neighborhood analysis be even minimally important?  For that, we have to forego USPAP and go straight to the Fannie Mae Selling Guide.  Section B4-1.3-03 covers the subject’s neighborhood and what Fannie Mae wants to see in this part of the appraisal report.  There are at least 36 questions Fannie wants appraisers to answer.  These questions are not hard and the answers are straightforward.  But the point is, USPAP has nothing at all on neighborhood analysis.  Only the GSEs have this.  So it pays to be familiar with those requirements.

True, USPAP and the neighborhood screams, “boilerplate in use here!”.  But, in the neighborhood analysis section of the URAR form is where we introduce the analytics of the sales comparison approach.  How so?  Simple.  Say, for example, in the neighborhood analysis, you show prices are increasing in the subject’s neighborhood.  All other things being equal, then the client has the expectation to see you adjusted the comparable sales upward, too.   If the neighborhood analysis has prices increasing, yet there are no upward adjustments to the comparable sales, this is an inconsistency.  We do not want inconsistencies.

Your analysis of USPAP and the neighborhood is important to a successful appraisal report.  Thanks for listening!