Be The Best of The Best
Real estate investors like you chase after one thing: be considered the best of the best. Well, that and rental income of course. To be the best, you have to use the best real estate investing tools.
That includes having the best comparative market analysis tool.
So what makes for an effective comparative market analysis? Here, we share with you the elements of the most effective comparative market analysis out there. Read and learn.
An X-Ray of the Most Effective Comparative Market Analysis
Let’s take the role of a doctor for a second. A comparative market analysis comes into your real estate investing tools clinic and wants you to diagnose the symptoms it is encountering. As a real estate investing doctor, you can spot the symptoms of an effective comparative market analysis anywhere. That is just what you were looking out for. So let’s go over what those “symptoms” are.
To learn about what Mashvisor has to do with your comparative market analysis, click here.
First Symptom of an Effective Comparative Market Analysis-Carefully Collected Comparable Properties
The whole point of comparative market analysis is to compare! The comparison will mean nothing if you don’t have specific subject property criteria. The investment properties you choose to compare with one another have a direct effect on the effectiveness of your results.
Some criteria to go by as you’re choosing properties to compare are as follows:
- When you look at the stats, sales that are far above or far below the bulk of the group are suspects. They throw off your results and cause divergence. So get rid of the outlier real estate comps that have far higher or lower price sales. Instead, have properties that are relative in price.
- Find rental comps that are as close to your subject investment property. An effective comparative market analysis consists of rental comps that are in the same neighborhood. If not the same neighborhood, then a neighborhood that is similar in another part of town.
Related: How to Do a Neighborhood Analysis in Real Estate
- Sold comparables that are not too old in age are used. We mean an effective comparative market analysis doesn’t use sold rental properties from 6 years ago. We both know how much the U.S. housing markets have changed, and do change each year. However, effective CMAs stay in a current of a time frame as possible.
- If the quantity permits, an effective comparative market analysis uses similar property types only. This means if you are looking to purchase a single-family home, then the real estate comps involved are of the same construction.
Second Symptom of an Effective Comparative Market Analysis- Adjusted Value for Property Differences
No two investment properties are alike. That is why the best of the best comparative market analysis reports take into consideration the differences between the properties. These differences will likely account for the different price points. Some ways you can adjust value is by:
- Adding or subtracting the difference in acreage or square foot size. Do the same process for any other feature differences, like bedrooms, baths, garages, and so on.
- Another aspect to take a look at is the financing differences that may affect the original selling prices. For example, seller financing can sometimes result in a higher purchase price paid for a property that is not related to its true value.
An effective comparative market analysis adjusts for “arms-length” transactions. Meaning there will be no specific situations like family sales or distress sales that took part in the property sale price.
Third Symptom of an Effective Comparative Market Analysis- A Current Analysis of the Competition
A comparative market analysis is only complete with a similar market analysis of rental properties listed that are competing with the subject investment property.
For example, imagine you find out that some of the higher priced rental comps were within periods of extremely low inventory (high demand and low supply = higher listing prices) This detail would allow you to adjust your listing price a bit lower if there is high inventory. Or vice versa, a higher listing price if there is lower inventory.
To assure you are fairly adjusting your prices, you need to study the competition. Use their “weaknesses” as your strengths. Study them, because you’ll be surprised what you can learn.
So What’s the Diagnosis?
You got to know the symptoms of an effective market analysis, so what would you say is the diagnosis? If you ask for another real estate investor’s “medical” opinion, we would say you have a pretty effective comparative market analysis on your hands.
Knowing this diagnosis, how will you apply this to your own comparative market analysis? Correctly adjusting the price, studying the competition, and having a collection of the right properties are ideal for an effective comparative market analysis. Knowing that, go out and compare!
To learn how to do your own comparative market analysis, click here!