How To Perform A Real Estate Market Analysis

If you belong to the world of real estate investing, you will sooner or later bump into real estate market analysis. But, to begin with, what is a market analysis anyway? A real estate market analysis – or a comparative market analysis (CMA) – is a study of the current market values of properties, comparable to yours, which serves as a tool for determining the market value of your own property. Be careful, this is different from an appraised value, which can be provided only by a licensed appraiser, and thus has no legal or financial value. Remember that the market value which you determine after conducting a comparable market analysis is subjective.

Conducting a real estate market analysis sounds frightening because there are so many factors that you need to take into consideration. However, if you take a systematic approach and perform a few steps diligently, it is totally manageable. So, how to do a comparative market analysis?

real estate market analysis for an investment property follows the same principles as for a residential property. Basically, you will need to gather data on properties in your area comparable to your property that are currently listed for selling or have been recently sold.

1. The first step is property analysis. You have to analyze your property including a wide range of objective and subjective characteristics such as:

  • Area and neighborhood
  • Size or square footage
  • Land area
  • Number of bedrooms and bathrooms
  • Other rooms
  • Number of floors
  • Construction age
  • Amenities and features such as swimming pool, garden, fireplace, balcony, veranda, etc.
  • Location with respect to roads, marketplaces, public transportation, schools, etc.
  • Recent improvements

Related: How To Do Investment Property Analysis

2. The next step is to identify a few recently sold properties in your area that are comparable to yours. We recommend looking at past listings within a radius of 1 to 3 miles from your property. Start with homes that were sold within the past 3 months and, if needed, extend to 6 months. For your comparative market analysis, aim to find a few (we recommend 3-5) comparables – or comps – i.e., properties that are similar to yours in terms of size, age, location, and other features. You can access recent listings throughout the US via Mashvisor.

3. Then look for current listings of comparable homes. Again, focus on a distance of 1-3 miles away from your property and identify at least 3 homes that are comparable to yours. Be careful. When it comes to active listings, keep in mind that listed prices are prospective, not necessarily real values. Many sellers tend to have high expectations and list their homes for a much higher price than their actual value. The value of unsold homes is highly affected by real estate trends. Generally the sellers’ market attempts to inflate values, while the buyers’ market attempts to deflate them. Thus, you should use active listings only as a supplement to recently sold properties’ values. Once again, Mashvisor can provide you with current listings in numerous locations within the US.

4. You should also consider pending listings – these are recently finalized deals which have not been fully closed yet. In your real estate market analysis, analyzing pending listings will give you a good idea about how the real estate market is doing at this very moment.

5. Look at expired listings. These will be of indispensible help in your comparable market analysis. Usually the reason for listings to expire is that the price was too high. If there are listings for homes comparable to yours that have expired, you should probably not ask for a price as high as theirs.

Related: Investment Property Calculator for Analyzing Real Estate Investments

An important question is where to get all this information needed for your comparative market analysis from. Here are a few reliable sources for real estate analytics:

  • The Federal Housing Finance Agency (FHFA) website is a useful tool in your market analysis as it has data on recently concluded sales within a region including all home mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration;
  • The FNC Residential Price Index is available for over 20 metropolitan areas based on home appraisals. It is very helpful in understanding market trends in any of the covered areas;
  • Real estate websites, though not entirely accurate, are another great tool for checking prices of recently sold and active listings. Some of the most popular ones are Zillow.com, Trulia.com, and Redfin.com.

6. Once you have gathered the needed info, you should choose one property – from the 3-5 comps that you have found – which is definitely worth more than yours. Maybe it is in a better location (off a noisy street, close to a bus stop, or next to a park), offers better amenities (a nice view), or is a newer construction. Set this as your ceiling value.

7. Then select one property that is for sure worth less than yours. This will be the floor price.

8. Now you have a price range, and your property market value should fall somewhere within this range. The next step is to compare your property to the ones that you have selected. Consider the size, the age, the amenities, upgrades and renovations, subjective features, and the location. Check out the exterior of the sold homes and the neighborhoods in which they are located.

9. Finally, you have to decide where your property falls within the selling price range of the comps that you have chosen. This is the market value of your home. 

Related: The Use of Predictive Analytics in Real Estate Investing

Conducting a real estate market analysis on your own is an intimidating task. However, it is doable and will give you a good insight into the valuation process. To conclude, one simple piece of advice – don’t fall into the trap that has caught many sellers, namely overpricing. While you want to make sure that you don’t sell your property for less than what it is worth, you also don’t want to massively overprice at the beginning. This will force you to eventually bring down the price when your property has lost its freshness on the market.

Use Mashvisor to quickly analyze real estate markets nationwide.

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