- November 16, 2020
- Posted by: Editor
- Category: Advice, Analysis, Strategy
A real estate market analysis is an assessment of the current market value of a property being bought or sold based on the prices at which similar properties in the same market have recently sold (comparables or real estate comps).
Real estate market analysis is important for both sellers and buyers. When selling an investment property, this analysis will help you set an appropriate listing price for your property. If the property is priced too low, you will leave money on the table. On the other hand, if the price is too high, it’s likely to remain unsold. In order for your property to sell fast and maximize potential profits, you need to run a real estate market analysis to ensure that it is optimally priced.
If you are buying an investment property, you need to figure out its market value to verify if it’s fairly priced. With a real estate analysis, you can know if it’s a good deal and make a competitive offer.
Simply put, a real estate market analysis helps buyers and sellers to ensure that they are getting a fair deal based on property value.
How to carry out a Real Estate Market Analysis
A real estate agent or broker can create a real estate market analysis report for you. However, you can also do a comparative market analysis in real estate. Just follow these steps:
- Analyze the Subject Property
When performing a real estate market analysis, the first step is to gather details about the property you are looking to buy or sell. Take note of its characteristics as they will form the basis of your analysis.
The characteristics of the property to be evaluated are: neighborhood (access to public transportation, hospitals, schools, restaurants, safety, etc.), property type, size, age, number of floors, number of bedrooms & bathrooms, parking space, amenities (balconies, deck, garden, swimming pool, fireplace, verandas, etc.), repairs.
- Find Real Estate Comps
Next, you need to locate 3 to 5 recently sold properties that are very similar and are located in the same area. Preferably, they should be within a radius of 3 miles and sold within the last 6 months. The more recent the sale, the better since property prices can experience rapid fluctuations.
To ensure an accurate real estate market analysis, the comps should be as similar as possible to the subject property.
- Find Current Listings of Comparable Properties
The next step is to locate current listings of homes comparable to the subject property in the same area. It’s important to look at the current listing prices because there might have been a shift in property prices in the last few months due to changes in the local housing market.
However, keep in mind that these listing prices are not necessarily real values. The listing prices may be lower or higher than the current market value depending on whether it’s a buyer’s market or a seller’s market.
- Identify Pending Listings of Comparable Properties
Pending listings are also a crucial part of your real estate market analysis. These are real estate deals that are yet to be fully closed. They will give you insight into the current state of the housing market. Check to see if their sale prices are more or less than their listing prices.
- Find Expired Listings of Comparable Properties
Next, find a couple of real estate deals that did not go through. If you are a seller, expired listings will give you an idea of what listing price will be too high. For buyers, they will show you what price is too high to pay for the subject property. When properties for sale fail to attract any buyer, it’s usually due to inflated prices.
- Establish a Price Range
After collecting all this real estate data, the next step in your real estate market analysis is to set up a price range for what the subject property is worth.
First, set your ceiling price. This is the price of the comp which is definitely better than the subject property in terms of the property characteristics. Second, set your floor price. This is the sale price of a real estate comp that is clearly worth less than the subject property. The fair market value of the property you are analyzing will lie within this price range.
- Determine the Market Value
The last step in your real estate market analysis is to decide where exactly the subject property falls within the price range you’ve established. This will be the market value of the property.
For this, you need to take into account all the real estate data you have gathered from your research. Compare the subject property to the comparable homes from all the above categories. By making value adjustments to compensate for the differences, you should be able to get an idea of where the subject property falls.
A real estate market analysis is a must If you are looking to buy or sell an investment property. By comparing similar properties in the same housing market, sellers can get a good value estimate of their property and appropriately price it. If you are buying, it will help you verify whether it is reasonably priced. With a real estate analysis, both sellers and buyers can ensure that they get a fair deal.