If you are buying or selling an investment property, one crucial thing you need to do is a real estate market analysis. Read on to find out what a real estate market analysis is and how it is done. With this guide, you’ll be able to nail this step of buying or selling a home.
What Is a Real Estate Market Analysis?
A real estate market analysis, sometimes referred to as a comparative market analysis (CMA), 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 CMA, 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.
What Is the Difference Between a Market Analysis and an Appraisal?
A real estate appraisal is a formal method of determining property value that is done by a licensed real estate appraiser. Appraisers use sophisticated methods that go beyond using real estate comps. They take a detailed look at numerous factors that affect property value.
Appraisals are normally required by mortgage companies to determine the amount of money to lend. Lenders do this to ensure that they can recoup the money they have lent on a property in case the borrower were to default on the mortgage.
On the other hand, a real estate market analysis is a method used by real estate professionals to estimate property value based on real estate comps. Unlike formal appraisals which provide a defined value for the subject property as of a specific date, a CMA provides a range of value that is considered subjective based on comps. You also don’t need an appraiser’s license to perform a real estate market analysis.
While it’s often more affordable, a residential real estate market analysis doesn’t comply with real estate appraisal standards. It is often used only to help set a listing price or pinpoint a good deal before selling or buying respectively. You should not rely on it as an appraisal.
Learn More: Real Estate Market Analysis vs. Home Appraisal: What’s the Difference?
How to Do 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 on your own. Just follow these steps:
1. 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.
You’ll need to evaluate the following characteristics of the subject property:
- Neighborhood (access to public transportation, hospitals, schools, restaurants, safety, walkability, etc.)
- Property type
- Size (square footage)
- Construction age
- Number of floors
- Number of bedrooms & bathrooms
- Other rooms
- Lot size
- Parking space
- Amenities (balconies, deck, garden, swimming pool, fireplace, verandas, etc.)
- Recent major improvements
- Needed upgrades or repairs
Related: 10 Factors That Affect Property Value (#7 Will Surprise You)
2. Find Real Estate Comps
After properly analyzing the subject property, 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. Then find the sale prices of these comps. Note that these prices may be different from their listing prices.
3. Find Current Listings of Comparable Properties
The next step is to locate 3 to 5 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.
4. 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.
5. 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.
6. 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.
7. 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.
To do 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.
Where Can You Find Data for a CMA?
You now know the steps involved in conducting a real estate market analysis. However, the hardest part of this analysis is usually finding reliable data. While there are several ways to find the needed data, you want to use the best tools for real estate market analysis. That’s where Mashvisor, the best real estate software for property data and real estate analytics, comes in.
Our real estate market analysis software will give you access to important data quickly and efficiently. You can get the following data from Mashvisor in a matter of minutes:
- Property Characteristics: With our Airbnb calculator, you can find all the facts and features of any investment property for sale in the US housing market.
- Real Estate Comps: Our calculator will also provide you with readily available real estate comps for any investment property listed on the platform. It eliminates the need for a real estate analysis spreadsheet which is time-consuming and also prone to error. You can also use the search platform to find pending properties by setting the appropriate filter.
To get access to our real estate investment tools, click here to sign up for Mashvisor today and enjoy 15% off.
For every listing on Mashvisor, you can get access to a list of readily-available real estate comps.
Related: Where Can I Find Data to Perform Comparative Market Analysis?
The Bottom Line
If you are looking to buy or sell an investment property, a real estate market analysis is a must. 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 CMA, both sellers and buyers can ensure that they get a fair deal.