Thinking about buying an investment property? Selling one? Before moving forward with this decision, you need to evaluate the value of your property. You can do this by conducting a comparative market analysis (CMA).
What Is Comparative Market Analysis?
Any successful real estate investor knows how crucial it is to conduct a CMA when it comes to buying and/or selling an investment property. A comparative market analysis is a report prepared by a real estate professional who isn’t necessarily a licensed or certified appraiser, analyzing active and recently sold homes similar to your property within your region. There similar homes are referred to as real estate comparables (or real estate comps, for short) and choosing the right properties to analyze is a crucial part of CMA.
Keep in mind that comparative market analysis is an unbiased estimate or opinion of what a real estate investor believes is the real value of his or her property. If you’re new to real estate investing or have just decided to become a real estate investor, you should definitely consider some help in this field. It will surely benefit you to get the input of a professional licensed appraiser who has thorough knowledge of real estate market analysis. You can use this knowledge to help you further your real estate career and help you figure out how to start a real estate business and how to make money in real estate.
There isn’t a specific set of rules to abide by when it comes to CMA because it depends on what you include in the analysis. You could be completely objective only scanning through the number of bedrooms, bathrooms, and square footage. Or you could be subjective and also focus on room design and structure style. Nevertheless, any effective comparative market analysis considers the following:
1. Conduct a Home Analysis
Before you can do anything else, you need to first run a thorough analysis of the actual investment property you’re considering to sell or buy. This is the base or the standard you would be using for other . It is recommended to include both objective and subjective aspects here such as: number of bathrooms, number of bedrooms, number of floors, square footage of the property, location of the property, a list of special features the property might have, and subjective items like design, style, and view of the property.
2. Choose the Right Real Estate Comparables
Now that you know what factors you’re comparing, you can move on to the second stage: choosing real estate comps. It is important to include both active and recently sold homes to get a fair estimate of your investment property’s value. When choosing which properties are comparable consider the following:
- You want to choose properties in the local housing market. Don’t choose properties that are too far away. When conducting a comparative market analysis, it’s better to compare properties that are in the same neighborhood or at least in a similiar area to give meaning to the numbers of the property prices.
- It’s important to choose recently sold properties. It isn’t easy to decide what is recent or not, but consider the pace of the market. If sales are slow, you can probably go back 2 or 3 months. However, in fast markets, consider only the most recent sales.
- Similar price range can give away whether you’re choosing the right investment or rental property. If you’re including real estate comps/rental comps with a price too high or too low, then you’re probably making a mistake. You should look over the reason behind the divergence in the property price.
3.Adjust the Property Value for Differences
You might find it very difficult to find a real estate comparable that’s a perfect match to your investment property. That’s because all real estate properties are bound to exhibit some differences. Adjusting the property value for these differences is what you need to do to have a proper comparative market analysis. Make adjustments in your property value for the reasons behind the real estate comps’ difference in features. These are the same features you look at when initially choosing the comparables.
What can affect a property’s value
- Construction age: This is usually the reason behind the different property prices of your comparables. Construction age plays a major role in determining the price of real estate properties. Older homes often are considered to have more historic value and a certain character. This is one thing differentiating them from newer basic homes. But of course choosing an older home means you need to also consider any extra repairs or maintenance. If repairs need to be constant, that would reach high costs. All this can affect the value of the property
- Location: This is one of the major determinants of a property’s value in conducting a comparative market analysis. We all know a rental property in the city is going to be a lot more expensive than one in the suburbs. However, that isn’t where it stops. Since you’re looking at real estate comps in the same or similar neighborhood, that won’t be of concern to you. Things to look at when comparing real estate properties is the exact property location: being closer to schools, on a quiet street, with nearby public transport , or even the availability of a nice view. All these can add value. Any differences in these features should be taken into consideration when comparing the fair market value of different properties.
- Upgrades and renovations: Any recent remodeling or upgrades done to a part of the property will obviously add value. These should also be taken into consideration when comparing different real estate comps to make the proper adjustments.
- Amenities: A property that comes with a fireplace, a swimming pool, yard space, or a garage will have a higher value than an investment property without these features.
How Mashvisor Can Help You in Conducting a Comparative Market Analysis
Mashvisor is all about providing you with the tools necessary to make the best real estate investments. We do this by giving you the ability to find lucrative traditional or Airbnb properties in no time! You’ll have all the information you need to start the process of conducting a comparative market analysis.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.