The more I review appraisals, the more apparent it becomes that many appraisers in Houston are confusing the terms Market and Neighborhood. This creates misleading results in appraisal reports and can lead to an incorrect conclusion of value.
For starters, let’s give some basic definitions for each of these real estate terms:
A Real Estate Market is an area, usually geographically constrained, where buyers and sellers come together to make transactions. These areas usually have some commonalities such as school districts, proximity to local business districts, etc. For instance, the Medical Center market area in Houston is considered a market area. Buyers in this area usually are looking to move here to be closer to their work. A market area usually consists of many neighborhoods. They can reside within cities or be entire cities themselves. Other examples of market areas would be The Houston Heights, Bellaire, The Woodlands and Galveston Island.
A Neighborhood is a group of homes that share common amenities, construction time periods and overall design. They are often referred to as communities and MAY contain multiple subdivisions. Examples of neighborhoods in the Greater Houston area would be Gleannloch Farms, Cinco Ranch, Sierra Plantation and Fall Creek.
A Subdivision is a smaller group of homes that are more closely related in terms of appeal, construction period and also price range. It is often used interchangeably with the term “neighborhood“, which in some cases is still correct.
As you can see, it can be somewhat confusing to differentiate between these terms. In the next part of this series we will go over how the incorrect use of these terms causes confusion and misleading results in a real estate appraisal report.