Competitive Market Analysis: What It Is

Carrying out a competitive market analysis before investing in a property is essential for both novice and experienced real estate investors.

Table of Contents

Defining Competitive Market Analysis
Who Should Conduct a Competitive Market Analysis?
Is Competitive Market Analysis the Same as Appraisal?
What Do You Include in a Competitive Market Analysis?
How to Do a Competitive Market Analysis in 6 Steps

Real estate investing can become very lucrative when done right. And to get it right, you need to put in the work. A huge part of real estate investing success is performing due diligence. A lot of investors, unfortunately, don’t give it much importance, but this is what separates the men from the boys.

As an investor, you would want to get the most out of your investment. You can only achieve an optimal investment return when you do thorough research and analysis of what you’re getting into.

All investors should know about competitive market analysis real estate early on in their investing journey. But what is it, and how does it improve your chances of investing success? We will address some of your questions about competitive market analysis and how you can do it efficiently with the help of a real estate software like Mashvisor.

If you’re ready to elevate your real estate investing game and know more about how to use competitive market analysis to your advantage, read on.

Defining Competitive Market Analysis

What is a competitive market analysis? A competitive or comparative market analysis (CMA) refers to a method used by real estate professionals to determine the fair market value of a property listing before buying or selling it.

Serious investors and industry professionals look at similar properties that have recently been sold, as well as current listings, within the same neighborhood. The similar comparable properties – or real estate comps – give them a better insight into a subject property, as well as the condition of the real estate market they’re considering.

A competitive market analysis shows investors which properties can give them competitive rates. It is especially handy if you’re looking for investment properties with excellent potential to generate a good income.

How many properties should be included in a good competitive market analysis? The more data you have, the better. A good number of comparable properties is three to five. But if you can get data for more comps, the better your real estate market analysis turns out.

Conducting a reliable and accurate competitive market analysis can be an uphill task since many real estate professionals aren’t taught this skill in their licensing classes. Many enter the field without this special expertise in market analysis.

It’s also challenging to estimate a property’s fair market value since there are many factors that influence how much a property is worth. The most common factors are the location, the number of bedrooms and bathrooms, and square footage. Other factors include the property’s condition, age, lot size, and amenities.

However, you can individually perform a competitive market analysis by looking at real estate comps.

How Competitive Market Analysis Improves Your Chances of Real Estate Investing Success

As a real estate investor, you can get several benefits from a competitive market analysis. Here are some of them:

You Know Where Your Property Stands in the Market

A CMA takes your property and pits it against other similar properties in the area that have been on the market within the past half year or so. If you’re an investor looking to buy an investment property, it gives you insight into the market you’re considering to find the best deal possible.

As an investor, you would want to get the most out of your investment, so it is important to identify which property is the most competitive in terms of pricing and return on investment.

If you bought a property some time ago and waited for a more opportune time to sell, a comparative market analysis also gives you an idea of how much you can sell it for. All you need to do is take a look at other comparable properties in the area that are listed or have sold in the past six months. It will give you a good idea of current market values.

It is especially important because, as a seller, you don’t want your property sitting on the market for too long because it was incorrectly and unreasonably priced.

You Can Manage Your Expectations

A competitive market analysis is all about obtaining the right information and data. As an investor, you must arm yourself with market data to help you manage your expectations in investing. You will hear different stories behind real estate investing; some good, others bad.

A CMA allows you to manage your expectations about your current market and what it offers. It also gives you the luxury of preparing contingency plans for just-in-case scenarios, especially amid the prevailing economic shifts.

You Can Make Well-Informed Decisions

Lastly, because of all the data and information you can acquire with a competitive market analysis, you are in a better position to make well-informed decisions. It helps you determine the price range for your property before you list it on the MLS.

There’s so much you should be aware of when buying and selling a property. A competitive market analysis gives you an excellent place to start.

Who Should Conduct a Competitive Market Analysis?

Now that we’ve already defined a competitive market analysis, the next question to answer is, “Who should obtain a CMA real estate report and how does getting one help them?”

Here’s a breakdown of which real estate professionals should get a CMA:

Home Sellers: A CMA report helps home sellers price their properties competitively and get an insight into the profits they should expect from the sale. The report not only helps them set a listing price but also creates an effective marketing strategy.
Home Buyers: With a CMA report, a home buyer can estimate a property’s fair market value and also submit a competitive offer. Generally, a CMA protects a buyer from offering too much or too low on a home. It also helps buyers stay on their budget.
Refinancers: CMA reports also help property owners determine if their home’s value is enough to complete a refinance. Typically, lenders require you to provide at least 20% equity to qualify for refinancing. A CMA will help you to know whether you can qualify.
Investors: Investors who want to make profits from flipping a home or renting their property know that it’s important to get their numbers right. A CMA report can help you analyze undervalued investment properties and protect you against making poor investments. It puts you in a stronger negotiating position.

Real Estate Investing Using a Competitive Market Analysis

Investors like you will find using a comparative market analysis quite helpful as it gives you a better understanding of what the current market conditions are. With even more research, a CMA can also give you some historical information about the market’s behavior and possible future trends.

While a CMA makes comparative analysis a lot easier for house flippers, it’s also a good tool for rental property investors.

We’re all aware that rental property investing is all about location. The location of your property will make or break your buying decision. Not all real estate investments make for good rental properties. Each market offers something different to rental property investors.

As a tool, a comparative market analysis allows rental property investors to see what the rental conditions are like in a particular location. Taking a more in-depth look at rental comps in your area of choice allows you to look for the most promising properties and set reasonable rental prices for your traditional or vacation rental properties.

Is Competitive Market Analysis the Same as Appraisal?

We’ve seen that a CMA allows you and your real estate agent to know how much other comparative properties within the same neighborhood are selling for. While both a competitive market analysis and an appraisal may sound the same, they are not.

Defining Real Estate Appraisal

A real estate appraisal refers to a formal, neutral estimate of a property’s value as of a particular date. An appraisal is a necessity for bank transactions.

As such, many people tend to confuse a CMA and appraisal since they are both used to getting a property’s fair market value. However, the main difference between the two lies in the personnel involved.

A CMA can be conducted by an agent or any real estate professional. On the other hand, an appraisal is performed by a licensed property appraiser on behalf of a bank. A bank or lender conducts a property appraisal when an investor requests financing to purchase a property.

While CMA and property appraisal methods are quite similar, bank property appraisers have no vested interest in the said property. The main goal of an appraisal is to determine a property’s fair market value to ensure the bank isn’t lending the investors more money than needed.

Determining Property Value With a Competitive Market Analysis and a Real Estate Appraisal

A competitive market analysis and real estate appraisal both have different roles in determining a property’s value. A CMA provides a range for the property’s fair market value. An appraisal, on the other hand, provides a specific value for the home. Appraisals are also supported by the presentation and analysis of relevant property data.

While conducting a CMA, a real estate agent or investor heavily relies on how many comparable properties nearby have sold and how long the homes stayed on the market before selling.

CMAs look at properties with similar square footage and the same number of bedrooms. An appraisal heavily depends on the particular property’s features and condition. A seller could invest some money for home improvements to increase a property’s fair market value, but they don’t mean a thing to a comparative market analysis.

What Do You Include in a Competitive Market Analysis?

Real estate agents can use software solutions to generate a CMA real estate report. However, it’s also possible for investors to perform their own CMA.

A good CMA report contains the specific subject property plus three to five comparable homes. You then get the following data for each home:

Property Size: The report contains the square footage for every comparable property.
Property Description: The property description includes the address, number of bedrooms and bathrooms, floor plan, elevation, and its current condition. It also includes other important property features, like laundry, heating and air conditioning, and flooring.
Property History: The report should also include the year the property was built to give buyers an idea of how old the property is. Newer homes built with better materials are considered more valuable than older ones. However, home improvements can significantly increase a property’s value.
Sales Price: The report also includes the prices at which the comparable homes each sold for. If there were any price adjustments, the report contains the initial listing price, as well as the price per square foot.
Property Tax History: A CMA report should also include enough information about the subject property’s tax history to help manage buyer expectations.
Estimated Property Value: Finally, the CMA report will give you an estimated fair market value for the specific property you’re analyzing.

While there’s no format for a standard CMA market data approach, a typical one will include the above data relating to market analysis real estate.

How to Do a Competitive Market Analysis in 6 Steps

You can approach this in a couple of ways. You can either get help from a real estate professional or do it yourself.

If you don’t want to go through the trouble of getting CMA reports yourself, you can hire a real estate agent to do the analysis. A couple of advantages of working with professionals are they are able to access more data points and also understand real estate trends in your chosen market.

However, you can also carry out the entire process yourself. It’s not as complicated as it seems. Simply follow the steps below:

1. Analyze the Neighborhood

“Location is everything” has always been a common saying in real estate for a reason. You should carry out a real estate market analysis even before you look at the property itself. Ideally, the general quality of the neighborhood can help you assess whether you’re getting a good deal.

Firstly, look at the quality of the neighborhood by noting the features that are attractive and those that are not. Determine how close the neighborhood is to amenities such as parks. Secondly, take a mental note of the curb appeal and the most attractive blocks. Check whether there are any potential causes of disturbance, such as railways and busy highways.

While you can do the above using Google Street View, keep in mind that the images might be a bit outdated. It’s better to drive through the neighborhood yourself.

Using Mashvisor for Neighborhood Analysis

As a real estate software, Mashvisor helps investors find the right investment properties that align with their goals and needs. Analyzing a particular location is easier with Mashvisor, given its huge database that covers almost every area in the 2022 US housing market.

Simply log on to Mashvisor and enter a location of your choice in the search bar. The location can be a specific address or just a city, town, or zip code. Afterward, you’ll be taken to a page that shows you the map of the area. You can zoom in to get a better view of actively-listed properties in the area.

To get the most out of the map, you need to activate its heatmap settings using the dropdown menu in the upper left corner. You can see how a neighborhood is performing under the following categories:

Traditional Rental Income
Airbnb Rental Income
Airbnb Cash on Cash Return
Traditional Cash on Cash Return
Listing Price
Airbnb Occupancy Rate

After you choose a filter, the real estate heatmap will be activated and will show you how the market is performing, given your filter of choice. The green areas indicate higher numbers, while the red indicates lower numbers. Greens generally mean good performance; however, in the case of the listing price, it depends on whether you’re a buyer or a seller.

2. Gather Property Details

Once you’re done with the location, it’s now time to focus on the property itself. You want to learn as much as possible about the property before purchasing it. Remember, to compare the subject property to other comparable homes, you need to know everything about it. It’s also easier to find accurate real estate comps when you have the property details.

Here’s the property data you need:

Property location, including street, neighborhood, city, and county
Acreage, if it’s privately owned
The number of bedrooms and bathrooms
Square footage
Recent renovations
Property age (Year built)
Any outstanding features, such as a swimming pool

Some professionals also recommend gathering property tax information. It is because the property tax determines property expenses, which, in turn, affect the property price. High property tax lowers the property value. It might not be a primary factor, but definitely something worth considering.

You can easily do it with Mashvisor. Once you can access the website, you can use the map to check out different properties in your area of choice. Simply enter the location and click on the pins on the map. Each pin represents a listed property.

You can let your pointer hover over a pin for a summary of the property. If you want a more detailed description, click on each pin to see all the information available on that property. You may also turn to the sidebar and click on the tabs labeled Investment, Airbnb, and Traditional to get an idea of how much other listings are going for.

3. Select Comparable Properties

After understanding the local housing market and gathering as much property data as possible, you can now search for real estate comps. What do comps mean?

Real estate comps are comparable properties that are similar to the subject property. Ideally, you want to select three to five properties within the neighborhood that have sold recently.

Pay special attention to this step. It might be the most important step of the comparative market analysis process. You want to compare apples with apples, not other fruits. A single mistake can lead to an overestimation or, even worse, undervaluing of the property.

Focus on homes that are within a one-mile radius of the subject property and within the same school district. The comps should have the same square footage, number of bedrooms and bathrooms, lot size, and construction type as the subject property.

Also, only select comps that have been sold recently. The more recent, the better since property prices fluctuate over time.

Competitive Market Analysis - Real Estate Comps

Real estate comps allow prospective investors to compare properties in a particular neighborhood or location and come up with an estimate of the subject property’s market value.

How to Find Real Estate Comps

Comps are important to any real estate investor. It’s crucial that you know how to find them for a better estimation of your property. Here are a few ways to find real estate comps:

Real Estate Agents

As mentioned earlier, you can hire a real estate professional to help you conduct a competitive market analysis. A real estate agent or broker can do the research for you and just give you the report. They can access the MLS and possess a better knowledge of local market conditions. It is especially useful for out-of-town investors.

Home Appraiser

Another method to consider is getting a licensed home appraiser. Since home appraisers are property value specialists, they can give you a fairly accurate estimate of property values in your chosen location, including the subject property.

If you’re the property owner or seller, it might be more cost-efficient to hire an appraiser instead of a real estate agent, since the former charges only a few hundred dollars per home. It is something you should consider.

Real Estate Comps Software

Artificial intelligence plays a major role in real estate investing nowadays, especially with predictive analysis, machine-learning algorithms, and big data. Mashvisor is a company that fully understands the investors’ needs and utilizes technology to address such needs.

As a real estate investing tool, Mashvisor can point you to the right investment opportunities in a particular market. It offers not just neighborhood analysis but investment property analysis as well.

To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.

4. Adjust Value for Differences

No matter how similar the comparable properties might be, there might be small differences. As such, you need to make some adjustments to the property values to make up for the differences.

For example, let’s assume the subject property is a two-bedroom home. You find a comparable property that’s similar to it in every way and has recently been sold, only that it’s a three-bedroom house. In this case, you can assume that the buyer paid more for the extra bedroom. Assign a value to it and deduct it from the comp value.

Add or subtract values to any differences in the acre and lot size, as well as bedrooms, bathrooms, and garages. You don’t need to adjust the value of the subject property.

Making the necessary adjustments is easier with Mashvisor’s investment property calculator. The tool is easy to use, very interactive, and highly intuitive. You can use the default data found in Mashvisor’s regularly-updated database or enter values based on your own research.

If you choose to go with your own numbers, the system’s AI will automatically adjust and recompute based on your entries. It gives you fairly accurate and highly realistic projections that are just about right for the market.

5. Calculate the Price per Square Foot

At this point, most of the heavy lifting has already been done. If you nail the previous steps, the rest should be easy.

The next step involves calculating the average price per square foot for the subject property, as well as the property comps. Simply divide each of the selling prices by the specific square footage of the property. Now, multiply the figure by the subject property’s square footage to find the average price per square foot.

Let’s look at a case study to understand the concept better.

Let’s say you want to carry out a comparative analysis for a property with a square footage of 2,000 feet. You’ve conducted a search for property comps and selected the following comparables:

Property 1: 2,100 square feet sold for $350,000 (Price per square foot = $166)
Property 2: 2,000 square feet sold for $340,000 (Price per square foot = $170)
Property 3: 2,200 square feet sold for $360,000 (Price per square foot = $163)
Property 4: 2,050 square feet sold for $345,000 (Price per square foot = $168)

Based on the above figures, the average price per square foot is $166. Now multiply it by 2,000 (the subject property’s square footage), and you get $332,000. It is a fairly accurate estimate of your subject property’s market value.

6. Assess the Property in Person

Now that you have an estimate of the property’s fair market value, don’t stop there. You need to visit the property in person and assess it yourself. It is to ascertain whether any major property issues can affect the property’s buying price.

Seeing the property with your own eyes allows you to closely see if the property is worth the asking price. If you don’t find any visible problematic traits, ask the property owner about any issues or recent repairs and major upgrades. If there are any, estimate how much value they’ve added to the property.

Suppose you find any significant issues you didn’t account for in your property research, such as cracks in the foundation, old siding, or other hidden issues. In that case, you might need to adjust your CMA to get a more accurate estimate.

Key Takeaways

Conducting a competitive market analysis is an important way for investors to estimate the fair market value of a property. A CMA report will help you make a competitive offer and also negotiate the buying price.

It may seem complicated and time-consuming, considering you’re checking out several different properties, but it is a must for any serious real estate investor. As an investor, you would want to get optimum returns on your investment. Working on a competitive market analysis increases your chances of investing success.

When carrying out the CMA process, you need to be careful so that you don’t end up with an inaccurate estimation. For example, your comps should be as similar to the subject property as possible. In addition, they need to have been sold recently because real estate prices change.

It is why you need a real estate investment platform to get an accurate CMA report. Mashvisor is the best resource for real estate data, property comps, neighborhood and property analyses, and real estate calculations.

Mashvisor is your one-stop shop for all your real estate investment needs. A subscription will give you access to a massive database of real estate markets in all 50 states. You will also have access to several tools, such as the Property Search tool, real estate heatmap, investment property calculator, and a large directory of real estate professionals nationwide.

To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.

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What Is a Competitive Market Analysis?