NEIGHBORHOODS AS SETTINGS FOR REAL ESTATE ANALYSIS: AN EXPLORATION OF PHYSICAL, SOCIAL AND ECONOMIC VARIABLES AS DETERMINANTS OF MARKET SETTINGS (URBAN, DEMOGRAPHY, LAND USE)

The real estate appraisal process requires the appraiser to define the neighborhoods. The analysis of the neighborhood is considered to be an important step in estimating the highest and best use of a property which, in turn, is a crucial step in estimating its market value. The neighborhood is also important within the valuation process itself, for it is within this geographic area that the comparable market data (sales, rents, vacancies, expenses, lending attitudes, etc.) are supposed to be found.; The literature consistently refers to a "neighborhood"as a contiguous area. Yet most real estate markets are not limited to one contiguous area, especially in automobile oriented suburbs. Real estate brokers and salespeople have recognized the limitations of considering a market as restricted to a contiguous area. They usually show prospective homebuyers alternative residences in separated areas or neighborhoods they believe are competitive and comparable. A grouping of comparable neighborhoods may be referred to as a market setting, and "market setting" is suggested as a term superior to "neighborhood" in these contexts.; The hypothesis that "market setting" is a superior describer of subsections of the community within which real estate should be analyzed has been studied through cluster and regression analyses of listings of single-family detached houses in the adjoining towns of Guilford and Madison, Connecticut. Both cluster and regression analyses supported "market setting" as a superior term to "neighborhood" although the support from regression analysis was not as strong as from cluster analysis.