One of the first things you have to do when you’re planning to sell or buy a house is real estate market analysis, also known as comparative market analysis (CMA). It is a process usually performed by a real estate professional, but it can be done by any real estate investor as well, with the right guidance. Mashvisor can be the most suitable tool for the role of your guide regarding real estate market analysis and any other real estate investment topic. So, let’s get to it.
What Is Real Estate Market Analysis (CMA)?
Real estate market analysis, or comparative market analysis, is the study of a real estate property’s market value compared to similar properties’ values in the same geographical location, that are listed for sale or have been sold recently.
Do Real Estate Market Analysis and House Appraisal Count as the Same Thing?
No. Real estate market analysis and house appraisal may sound like the same to you, but they are actually not the same thing. Here are the major differences between the two:
- Real estate market analysis has no legal or financial value, while house appraisal is a professional process conducted when the monetary value of a real estate property is required for a transaction, legal settlement, etc.
- Real estate market analysis is performed by a real estate broker – or even the investor him/herself – and is free of charge, while a house appraisal is conducted by a certified and unbiased property appraiser and requires paying a fee of around $300.
Related: What You Need to Know About Home Appraisal
What to Take Into Consideration When Conducting a Real Estate Market Analysis?
In real estate investing, when comparing properties similar to the subject rental property, real estate market analysis should consider properties that are 1 to 3 miles away from your investment property.
It is advisable to consider the properties sold between 3 to 6 months ago. Look for no less than 3 properties similar to your rental in order to have a better analysis.
Why Is Real Estate Market Analysis Important?
Real estate market analysis is important because it helps you determine the true value of your investment property’s rental income. In other words, it tells you how much rent you can charge for your rental property. CMA is also important because it determines the listing price for your property, if you are a real estate investor who is interested in buying real estate properties and then selling them to make profits.
It is important to remember that current listings are not 100% accurate, as they are a matter of estimation. The seller’s market usually tries to go for the highest prices, while the buyer’s market opts for the lowest prices regarding properties’ values.
Related: Buying Your First Rental Property: Don’t Make the Following Mistakes
What Are the Steps of Conducting a Real Estate Market Analysis?
- Analyze the major characteristics of your investment property.
- Square footage, number of bedrooms, bathrooms and floors, and the age of the house are all important characteristics, along with amenities such as: pools, gardens, yards, and fireplaces. Look at comparable houses that have the same features in your neighborhood.
- Jot down the recent improvements you have done in the house, like remodeling your kitchen, fixing the roof, or even patching the walls. By conducting these adjustments, you can now compare your rental property to the comps that are listed on the market or have recently sold, and see where your property’s value fits among the range of prices.
- Understand the importance of location.
- Assess your property in regards to its location in your neighborhood. In this case, you either use a Google Street View or just do it from your own personal knowledge. Is your house close to the main roads, public transportation, facilities, and schools? Also, you have to ask yourself this: Is your neighborhood attractive? If you were a buyer, would you want to live in this area?
- Compare the collected data.
If you are thinking of renting out your investment property, you have to look beyond the physical features of the house. Comparison should take into consideration things like:
- Vacancy rate. Consider the vacancies of the similar houses (comps) you chose to compare to your property. This will give you an idea about how vacancies can affect your rental income. It can also help you determine how much money you can charge for your property’s rent, by comparing the rent prices between the comps.
- Price per square foot. If you choose 4 properties to compare yours to, look at their square footage and the price they were listed/sold for. Then, take the price of each comp and divide it by the square footage to get the price per square foot for each one of them. After that, you have to calculate the average price per square foot among the comparable houses.
Here is an example:
| # | Square Feet | Price | Price per Square Foot |
| House 1 | 2,100 | $350,000 | 167 |
| House 2 | 2,300 | $380,000 | 165 |
| House 3 | 2,400 | $400,000 | 167 |
| House 4 | 2,600 | $490,000 | 188 |
After doing the calculations, the average price per square foot for the four houses is $172.
Now, what you have to do is to multiply the average price of the comps by the square footage of your rental property to get an estimated value for it. Let’s assume that your property is 2,000 square feet. Following the above mentioned example, the estimated value of your property is $344,000.
- Adjusting the comps.
When collecting data on similar properties to yours in order to do a comparison, you will notice some differences between the houses. Not all real estate properties have the same number of bathrooms or bedrooms, which means that you have to make a value estimation with regards to these differences. A simple example of this is: if a comp has two bathrooms, but your property has three, add the value of the extra bathroom to the estimated value of your property to get a more accurate evaluation.
Related: Am I Trying to Rent My Property for Too Much?
One more thing you need to keep in mind: always study the real estate market to see when the right time for you to sell your property is. If a good number of similar houses are on the market for sale, this could mean that you might not be able to sell it as soon as you would like to, unless your house stands out due to additional features that do not exist in the other houses. However, if there are not many houses similar to yours listed for sale, it can be sold fast.
It is important you understand the value of your income property and do not make investment decisions without doing your research! Overpricing can harm as much as underpricing. Seeking the right real estate sources to learn about real estate market analysis is not as hard as you might think it is. If you are interested enough in constantly making profits through your real estate investments, we advise you to learn more about the real estate investing field. Mashvisor makes this process easier as it provides you with all the essentials you need to know about the real estate world.