A real estate competitive market analysis is a crucial process for investors when determining the offer for a home—every investor should use it.
Table of Contents
- What Is a Competitive Market Analysis in Real Estate?
- Is the Real Estate Industry Highly Competitive for Investors?
- How to Do a Real Estate Competitive Market Analysis in 6 Steps
If you’ve ever purchased or sold a house, you’re probably familiar with determining a property’s worth. If the selling price is too high, the chances of the home selling are considerably reduced.
Before buying or selling a home, a real estate competitive market analysis should always be performed to ensure the price is reasonable. The analysis will examine the prices of comparable houses in the region to determine a fair market price.
And with the help of online real estate tools like Mashvisor, you can get ahead of your competition and be sure that you are on the right path when it comes to competitive market analysis.
Before we go into how to do a real estate competitive market analysis, let’s define what it is.
What Is a Competitive Market Analysis in Real Estate?
A competitive market analysis (CMA) is another name for a real estate market analysis. It is essentially an examination of current market prices of properties identical to the one you want to purchase or sell.
A real estate competitive market analysis is a valuable tool for determining the market value of your own home, particularly if you’re attempting to obtain an appropriate selling price before listing it.
It’s worth noting that a real estate market analysis is not the same as an appraised value, which a skilled real estate appraiser calculates. A competitive market study is subjective and provides the seller with information on the worth of comparable residences in the region.
While there are several factors to consider while conducting a real estate analysis, it is entirely achievable with a well-organized strategy and an insightful tool.
You may conduct your own competitive market analysis by researching similar homes (known as “comps”) on real estate websites such as Mashvisor.
Related: Appraisal Value vs. Market Value: What is the Difference?
Is the Real Estate Industry Highly Competitive for Investors?
Yes. Real estate, like any lucrative sector, can be pretty competitive. Seasoned investors understand well that getting the top prices involves beating the competition.
While the real estate investment industry’s always been (and will continue to be) competitive, today’s market presents investors with even greater difficulties. According to 2022 housing data, the present market is the most competitive in recorded history.
But don’t let it scare and demotivate you from getting into the real estate sector. To thrive in business, you need a competitive advantage that separates you from the competition now more than ever.
Simply put, a competitive edge will no longer benefit you if other investors begin to outperform you. You ultimately need a distinct advantage that will allow you to stay ahead of the competitors in your industry and secure the most lucrative deals before they do.
For starters, you can get the upper hand over many of your less-informed competitors by completing your research and becoming a specialist in your market. Moreover, knowing your market inside and out will help you recognize potential opportunities before other investors.
For example, you may notice a new neighborhood’s potential and become an early investor before prices rise. Knowing your local and national real estate markets will allow you to stay ahead of your rivals and make the wise decisions of an experienced investor.
Read local newspapers to stay up to date on local business activities. If a new retail center or a large business is being constructed in the region, it may be a good time to buy a home with the idea that housing demand will increase.
Importantly, make your research process more manageable by using online real estate platforms that will save you lots of time.
How to Do a Real Estate Competitive Market Analysis in 6 Steps
We’ll discuss why you should always conduct a real estate market analysis, whether buying or selling a home. The research will help you understand the present housing market, how much comparable houses to yours are valued, and how much rent you can demand if it’s an investment property.
The insights gained from a real estate competitive market analysis assist sellers in determining a listing price. For purchasers, CMA helps evaluate if the asking price is too high, too low, or appropriate. A real estate competitive market analysis should always be performed to ensure that both sellers and buyers are receiving a reasonable deal based on the property’s value.
Now, let’s see how to perform a real estate market analysis in six easy steps by using Mashvisor.
1. Carry Out a Neighborhood Analysis
“Location is everything” is a famous real estate phrase for a reason. Before you check the property, you should conduct a real estate market analysis. Ideally, the overall quality of the area might assist you in determining whether you’re getting a reasonable price.
First, assess the neighborhood’s desirability by noting the attractive and unfavorable aspects. Analyze the neighborhood’s accessibility to facilities, such as parks, shopping centers, schools, and more. Second, list down the most appealing blocks and street appeal. Check for potential sources of disturbance, such as trains and major highways.
While Google Street View allows you to perform the mentioned above, remember that the photographs may be out of time. It is advisable to walk through the area on your own.
In addition, real estate websites such as Mashvisor can be of great help here. You can use the platform’s Neighborhood Analytics tool to choose the best location for your real estate investment plan, excluding the need to drive around the area or walk.
If you use the platform to look for an investment property in a specific location, hovering over any neighborhood in that city will offer you the following information:
- Traditional and Airbnb Cash on Cash Return
- Traditional and Airbnb Cap Rate
- Mashmeter Score
- Median Prices
Investors can use Mashvisor to find the best location for their real estate investment strategy.
2. Obtain Property Information
When you’ve finished with the location, it’s time to move on to the property. Before you buy a home, you should learn everything you can about it. Remember that in order to compare the property to other comparable properties, you must be well familiar with it. When you know the property specifics, it is also easy to locate reliable real estate comps.
You should assess the following features:
- Location of the property, including street, neighborhood, city, and county
- Measures or square footage
- Lot dimensions
- Number of bathrooms and bedrooms
- Additional rooms
- Floor numbers
- Age of construction
- Features and amenities
- Closeness to nearby amenities
- Recent or noteworthy improvements
Some experts also advise acquiring property tax info. That is because the property tax impacts property costs, which then affect the house price. A high property tax reduces the value of the property. Although it may not be the most crucial element, it is something to keep in mind.
3. Choose Comparable Properties
The next step is to look for comparable houses to yours. Similar homes should include the exact number of bedrooms and bathrooms, be in the same area, with a comparable lot size, and with similar amenities.
Take extra care here. It might be the most crucial phase in the competitive market analysis procedure. You want to compare apples to apples, not fruits in general. Moreover, a simple mistake might result in overestimation or undervaluation of the property.
Concentrate on properties within a one-mile range of the subject property and in the same school district. In addition, comps should be comparable in terms of house size and building style to the subject property.
Look for properties sold in the past three months to get the most accurate value as market patterns change. Then, if required, narrow your search to the previous six months. Choose and add three to five comparable homes to your list of comps.
As a bonus, Mashvisor provides a tool that allows you to perform a detailed real estate market comp analysis on a particular property with a single click. The tool will simply display the best comps for each property you click on, rather than gathering the data manually or downloading an Excel document and filtering out the unnecessary results one at a time.
Related: How to Run Rental Comps for a House
4. Modify Value for Differences
The next step in the competitive market analysis is the changes to property values to compensate for differences. It is because there may be minor differences between comparable properties, regardless of their similarities.
Imagine the subject property is a two-bedroom house, for instance. You discover a comparable home that recently sold and is identical in every aspect, except it is a three-bedroom home. In such a scenario, it is reasonable to assume that the buyer paid more for the additional bedroom. Here, you should assign a value to it and subtract it from the total comp value.
Moreover, add or remove values to any variations in land and lot size, as well as bedrooms, baths, and garages. You do not need to change the subject property’s value.
5. Choose a Price Range
Moving on with our competitive market analysis, it’s time to set a price range for your home after you’ve gathered all the essential information.
Determine Your Maximum Price
Select one from three to five comparable properties that is unquestionably worth more than your own. The property might be on a nicer street, have more amenities, or be newer. This figure will serve as your ceiling value or the upper limit of your pricing range.
Set Your Minimum Price
Then, choose a home that is clearly worth less than yours. Perhaps it is on a crowded street, with fewer amenities, or comes with a less desired curb appeal. It is your floor (minimum) price or the bottom of your pricing range.
Bonus: Examine the Property in Person
If possible, there is no better method to price a house than to see it in person appropriately.
Take notice of the following characteristics when strolling around the property: general condition, additions or renovations, amenities, features, essential updates or repairs, and the facade and landscaping.
6. Establish the Market Value
According to your competitive analysis, you should get an idea of how much your property is worth in the market. Consider everything you noticed while going around the house and how it will affect the value. Then, divide the selling prices of the similar properties on your list by their floor space to determine the price per square foot for each house.
Once you’ve determined the average price per square foot of your comparables, multiply that figure by the square footage of the house you’re attempting to sell or purchase.
After the complete competitive market analysis, determine where your home sits within the defined price range. The figure represents the market value of your house.
Conclusion
It may appear challenging to learn how to do a real estate competitive market analysis on your own. Nevertheless, by following our step-by-step competitive analysis approach, you will be able to establish a home price for any real estate venture accurately.
If you are a seller, you should undertake a competitive real estate market analysis to verify that you are not overpricing your house, which can cause outdated listings. The more time passes while your home is on the market, the more value you will most likely lose.
Alternatively, underpricing your home will result in a loss of prospective profits. Try and use online tools to get the most precise market value for your house.
One of the best tools on the market is Mashvisor. It is the ultimate source for real estate data, comparable properties, neighborhood and property analysis, and real estate calculations.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.