How to Do a Comparative Real Estate Market Analysis
If you’re considering buying or selling a house, you will need to conduct a comparative real estate market analysis to determine the market prices and to avoid buying a house above the market value or selling a house below the market value and losing money on your transaction.
The comparative real estate market analysis is used to determine the average and/or acceptable sales price of a specific property type in a market or a neighborhood.
To achieve the most accurate results, you should take into consideration the specifics and characteristics of the properties that you want to compare, such as the number of bedrooms and bathrooms in the property, or more specifically the square footage of the property that you’re buying or selling.
Identifying the Property’s Characteristics
There are several characteristics that should be taken into account when doing a comparative real estate market analysis. If you’re selling a house, you should only consider comparable properties that are similar in size and characteristics to the house that you’re selling. If you’re buying a house, then you should determine the size or type of property that you’re interested in and only consider comparable properties that are similar to what you have in mind.
The property characteristics that you should take into consideration include several features. The main characteristic that you should focus on is the size of the property, or its square footage. But other characteristics such as the number of bedrooms and bathrooms, the floors, and the age of the property are also considered important aspects to pay attention to. Additionally, you should also consider the features and attractions of the property. Include information such as amenities, swimming pools, gardens, parking, new installments and renovations, and any other factors that can affect the value of the property.
Once you have all these characteristics figured out, locate up to 5 comparable properties that are all similar and share the same features.
Finding Comparable Properties
To find comparable properties for the real estate market analysis, you can ask around the neighborhood or obtain the information from real estate professionals in that market. Typically, real estate agents will be able to help you locate comparable properties based on their knowledge of the market. You can also obtain some of the data from MLS sources and local departments.
Before you start comparing properties, make sure that the properties you compare are all within 1-2 mile radius from your target property (the property you intend to buy or sell). Additionally, to get more accurate results, you can do two separate lists of comparable properties based on the property status. Make a list of 5 properties that are on the market for sale and another list of 5 properties that have been recently sold.
This will allow you to identify any difference in the market performance over the past few months and to determine whether the selling price of properties has been increasing or decreasing, allowing you to do a rough estimate of how the prices might change over the following months.
Also, looking at the prices of properties that are currently on the market and how long they have been listed on the market for sale can give you an indication of what the price ceiling in that market is. Properties that have been listed at a certain price for extended periods of time without selling might have a price that is too high, which prevents them from selling. This can give you an idea of what price you shouldn’t list your property at, or what price you shouldn’t consider buying a property at.
Related: Three Ways to Find Real Estate Comps
Doing the Calculations
After collecting all the data and identifying the comparable properties, it is time for you to do the necessary calculations for the comparative real estate market analysis.
The main method for calculating property values and determining the value at which you should buy or sell the property is the price per square foot. To get the price per square foot, you simply take the selling or listing price of the property and divide it by the home’s square footage. Repeat this step for each comparable property on your list.
Next, you need to calculate the average price per square foot for the comparable properties. To do this, you take the sum of each property’s price per square foot and you divide it by the number of properties.
To give you an example, let’s suppose that you have 3 comparable properties on the list; the first property is 2,500 square feet, and it sold for $400,000, so its price per square foot is $160. The second property is 2,700 square feet, and it sold for $425,000, so its price per square foot is $157. The third property is 2,300 square feet, and it sold for $385,000, so its price per square foot is $167.
In this example, the average price per square foot is $161. Therefore, you can conclude that, based on these calculations, properties that have a price per square foot that is above $161 are above the market average and vice versa.
Finally, to determine the baseline value of the property that you’re buying or selling, you multiply the square footage of the property by the average price per square foot that you’ve calculated. So, if the property that you’re buying or selling is 2,500 square feet, its approximate value should be $402,500.
Where Can I Get the Data for Real Estate Market Analysis?
As you might imagine, obtaining the data for conducting a comparative real estate market analysis can be a hassle, and it is probably the most daunting task of doing a real estate market analysis. There are, however, a number of online websites and sources that you can rely on when it comes to obtaining this data.
You can use Zillow, for example, to obtain the listings and the specifics of comparable properties in the market or neighborhood. You can also use Zillow’s Zestimates to get an estimate of the value of homes in the market.
Another website that you can use to do a real estate market analysis is Mashvisor. With the main purpose of the website being to reduce the amount of time needed for conducting a real estate market analysis, Mashvisor’s tools, features, and the data it provides can reduce the time needed for a real estate market analysis from several months to several minutes.
Final Thoughts on Real Estate Market Analysis
While these are the basics of conducting a real estate market analysis, this was by no means a comprehensive guide for doing one. There are several other aspects of a real estate market analysis that can apply to your real estate investment depending on where you’re investing, the state of the market and its dynamics, the type of property you’re investing in, or the investment strategy that you’re using.
To learn more about doing a comparative real estate market analysis that is specific to your investment, make sure to do the necessary research to understand how your investment could be different and what aspects you should consider when doing a comparative market analysis.