By Grant Murphy – COO of D.S. Murphy
If you’ve sat in on our Mastering Appraisals or Appraiser’s Guide to CMAs
courses, you’ve likely heard the silly way to remember whether you’re located in an Urban, Suburban, or Rural market area. The joke suggests if you can stand naked on your front porch and not receive a visit from the police, you’re likely in a rural area. If the neighbors call and the police show up quickly, you’re likely in a suburban area. Finally, if your neighbors ignore your porch standing, you may be in an urban environment since scenes like this may be not out of the norm with such a high population density. The joke is comical, but it does provide a good frame of reference.
Rural properties tend to have a larger concentration of agricultural uses meaning
more vacant land and larger tracts of land separating neighbors. Rural communities often have less access to traditional utilities such as public sewers, electricity, and natural gas. These areas are sparsely developed as a whole and are typically far away from urban centers or suburban sprawl. Because these properties are unlikely to be developed, the typical buyer is part of a minority of owners who would be interested in tending to the land or using it for agriculture. With fewer buyers, properties are less likely to sell quickly and are therefore more risky to hold. Both of these are red flags for Fannie Mae/Freddie Mac. The GSEs like to hold readily-saleable assets and rural properties do not meet this definition. Fannie Mae and Freddie Mac do not lend on vacant land. Rural properties tend to be largely composed of vacant, surplus land (that which is not needed to support the existing use but cannot be reasonably sold off).
Keep this in mind when deciding whether or not the property being appraised truly fits the need for the “Rural” box on the appraisal. Fannie/Freddie are sensitive to that box for all these reasons.
Moving into Suburban properties, we see the typical residential sprawl. A residential property surrounded by other single-family properties is likely in a suburban environment. Suburban environments are well-suited to residential use and will have features such as sidewalks, public parks, HOAs, schools, and low/mid-rise shopping centers. Take special note of the word “suburban” itself. When broken down as “sub- urban”, it becomes more obvious where Suburban starts and where Urban ends. Any community outside the dense, commercial sectors of a main city hub should be considered Suburban. Even communities close to Urban centers such as Ansley Park, Virginia Highlands, and Home Park (in Atlanta) are technically suburbs of the main Atlanta city center and should be considered Suburban.
The biggest difference one may notice when moving into an Urban environment is a focus on commercial enterprise rather than residential use. Urban areas typically have busy, multi-lane streets, large high-rise buildings, and a LOT of people per square mile. These are primarily places where people come to work. There may also be residential housing but instead of single-family detached homes, you will likely see high- rise condominiums. Think New York City, Miami, Midtown/Downtown Atlanta – these are Urban. Vacant land is non-existent in an urban environment unless it is park land designated by the local municipality. Growth, expansion, and change are rapid in urban areas with land commanding a significant value.
So, the next time you’re thinking about the difference between Urban, Suburban,and Rural remember this:
Urban: high-rise buildings, busy streets, little/no vacant land
Suburban: mainly single family residential, some vacant land/parks, pedestrian-friendly
Rural: mainly vacant land/agricultural use, multiple miles from nearest shopping centers, limited public utilities.