Understanding how to conduct real estate market analysis is crucial for every real estate investor. Real estate market analysis, also known as comparative market analysis, is the study of the current values of real estate properties which are then compared to the values of your own properties. This process helps you determine the current value of your properties in the real estate market and better price them for selling or purchasing processes.
Comparative market analysis provides a thorough knowledge of different aspects of property sales in different locations and the different factors affecting the process of selling and buying. It gives you a better understanding of your target market and the reasons behind the fluctuation of prices. Real estate market analysis helps real estate investors find good deals when deciding to buy a property and allows them to know if a property is overpriced or not.
Conducting a real estate market analysis without a real estate agent is a skill that every real estate investor should have. Although conducting a comparative market analysis without an agent seems hectic and complicated at first, it is totally doable if you understand how the real estate market works and how to evaluate real estate properties. The following steps will guide you on how to conduct real estate market analysis clearly and simply.
How to Conduct Real Estate Market Analysis: Start Analyzing Your Own Properties
As mentioned previously, a real estate market analysis is basically a process of comparing values of properties similar to yours. In order to do that, you have to analyze the characteristics of your own property. This means you should have the following data related to your investment property: the construction age and condition of your property, its size, the location and neighborhood, construction material, number of rooms and amenities such as a garden, a swimming pool…etc. These factors are important when assessing the property’s value.
An investment property calculator is a great tool to analyze real estate investments; check out this blog for more insight on this subject.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
How to Conduct Real Estate Market Analysis: Identify Properties Comparable to Yours
After you analyze your own property, it is time to find other properties similar to yours in terms of the type of property (condo, single-family apartment, residential property, commercial property), number of rooms, amenities and construction condition and age. It is recommended that you look for comparable properties or real estate comps that were sold in the past six months and identify at least 3 of them that are located in a distance of 1-3 miles away from your investment property. The more similar and closer in distance the real estate comps, the more accurate your comparative market analysis will be.
If you are wondering how to easily find real estate comps, read “How to Easily Find Real Estate Comps“.
Real estate websites such as Mashvisor can easily help you find real estate comps and save your time and efforts. Mashvisor’s platform works on the neighborhood and investment property levels to help you find real estate comps. At the neighborhood level, Mashvisor’s database provides you with data for neighborhoods in the cities you are interested in including cash on cash (CoC), capitalization rate (cap rate) and occupancy rate. You can use filters to specify and narrow down your research by identifying the size of the property, your budget, number of rooms and amenities in order to get a better picture of real estate comps in your targeted area/location. After you choose specific properties, Mashvisor will directly show you occupancy rate, CoC return, cap rate and expenses related to the selected properties. Additionally, Mashvisor will suggest similar properties in the same area for you to look at. You can use tools such as google maps to see pictures of the property and its surrounding area.
If you want to know more about neighborhood analysis, make sure to check out “How to Do a Neighborhood Analysis in Real Estate“.
How to Conduct Real Estate Market Analysis: Choose Two Real Estate Comparables (Comps)
After you choose 3-5 of the most suitable listings, choose one that has greater value than your property due to its size, age, condition or amenities, for instance. You also need to choose another one that is less in value comparing to your property. The price of your property should be located between the price of these two comps, as this will be the market value of your property.
How to Conduct Real Estate Market Analysis: Identify Your Property’s Price
Now that you know the range of prices that your property falls in, you will have to decide the price of your property according to the real estate market analysis that you conducted. Bear in mind that if you want to sell your property as fast as possible, the price you decide should be close to the comp with the lower price as buyers will find it a good catch compared to other properties in the same area/neighborhood. In all cases, do not risk overpricing your property and always take into consideration the current market situation.
What Are the Major Benefits of Real Estate Market Analysis?
Comparative market analysis gives you the chance to examine buyers and sellers’ behaviors in the market and determine whether the current real estate market is in favor of buyers or sellers. Although deciding the price for selling your property will merely be your decision, you have to be realistic and take into account CMA as it will reveal the range of values that your property falls in. It is always better to be realistic than hopeful when listing your property for sale. Otherwise, you do not want to risk losing money or relisting your property as re-listed properties become more difficult to sell. Therefore, it is crucial to understand your comparative market analysis and its results before deciding on a price for your property. On the other hand, real estate market analysis gives an insight into the real estate market that helps you respond to offers rationally through knowing the market trends before responding to any offers.
Bottom Line
Whether you actually need to conduct real estate market analysis or not, it is a skill that all real estate investors should acquire and know how to perform without the need of a real estate agent. Performing it is not as hard as many investors think as all they need to do is follow the above-mentioned steps and professionally study the current market and buyers and sellers’ behaviors.