Real estate analysis is the basic process of analyzing the opportunities to decide whether to invest or not in a particular real estate deal.
If you are looking to buy or sell properties but are confused to select the one giving a fair deal? Real estate analysis is your way to go. It helps you to get the best price for your property, depending upon its location, features, and construction age.
Let’s see how you can perform a real estate market analysis and get a great property deal for yourself.
What is meant by real estate analysis?
Real estate market analysis, also referred to as comparative market analysis, is a procedure that is carried out to determine the value of a property based on the real estate market’s value of comparable property in the given geographical locations.
One condition of choosing the comparable properties is that they have to be recently sold, or at least occupy a position on the listings for sale. This means that the competitor properties must be sold in the last three to six months and not before that.
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Why do you need to perform a real estate market analysis?
Real estate analysis is an important step to consider while selling or buying property. It is due to the following reasons.
- It helps you to understand the current patterns in the real estate market.
- It lets you know the exact worth of your property. If it’s an investment property, a real estate market analysis can help you determine the rental prices that you can charge on your property.
- The information obtained by doing a real estate analysis helps you to choose the listing prices as a seller and know if the listing price is too high, low, or nominal as a buyer of the property.
- It ensures that both the parties involved in buying and selling the property get a fair deal depending upon the actual market value of the property.
- Most importantly, it helps the buyers explore the different options of property and choose the most suitable one. At the same time, it helps the sellers to know the worth of their property and set the right listing price.
If you are new to real estate investment, read Real estate investment – How to get started?
Market factors to consider for real estate analysis
This step is specifically important if you are looking for investment property. The market trends in the prices are influenced by several factors such as population growth in that region, quality of life rankings in the location, past, current, and future market trends in the region, data on education levels, and workforce in that area, and so on.
These factors largely decide the market value of the property. In addition, there are some key factors that you must consider while making a real estate analysis. These are given as follows.
- Types of property having greatest demand in the market,
- The most active real estate agents and investors
- The local residential property wholesalers
- The fraction of tenant-occupied properties
- The inventory of the housing stock
- The location of the biggest employers in the region
Looking to analyze a ground up development? Read Site Analysis for Real Estate Developments + Case Study
7 steps to perform real estate market analysis
There are mainly seven steps in performing a detailed real estate analysis. These are analyzing the property, assessing the original listing price, checking the property value estimates, searching competitors, determining the price range, assessing the property in person, and then deciding the market value of the property.
Let’s discuss these steps in detail.
- Analysis the property
The first step in real estate analysis is to analyze your property. This includes a number of things like area, location, square footage of your property, lot size, number of bedrooms and bathrooms in the property, other rooms like storerooms, servant rooms, number of floors, the age of construction of the property, amenities, and features, the distance from the basic amenities like parks, schools, transport hubs, and notable improvements were done in the property.
- Assessing the original listing price
After performing the property analysis as the first step in real estate analysis, the next step is to check the prices of the property in the original listings online. Checking out photos online helps you to get a fair idea of the property in terms of its condition, features, amenities, location, and potential problems.
- Checking the property value estimates
You can get an estimate of your property’s market value by taking help from some online resources. These resources ask you a few questions about your property and give you a rough estimate of the market value of your property.
- Searching for competitors
The next step in real estate analysis is searching for competitor properties. The competitor properties are those having the same area, the same number of bathrooms, bedrooms, neighborhood, lot size, age, and so on.
You should check out the sold listings online to get an idea of the price change in which your competitor properties are selling out. Search for Homes in a radius of two to three miles around your property, homes that were sold in the last three months.
If you wish to take a wider look at the trends in the market value of the property, you can look back at the prices of property sold in the last six months. Lastly, choose three to four properties and add them to your list of competitors.
- Determining the price range
After you have done enough research on the value estimates, competitor property, checking out the listing prices, it’s time to determine a price range for your property.
There are two parts of this step in real estate analysis, one is setting the ceiling value and the other is setting the floor price of the property. The ceiling value is at the top of the price range whereas the floor price is at the bottom of the price range of your property.
You can decide the ceiling value by choosing the value of one of your competitors which is better than your property. This can be in terms of location, amenities, the age of the property, etc. Then to find the floor price of your property, choose a competitor whose value is less than yours.
- Assessing the property in person
Assessing the property in person while performing real estate analysis is one of the deciding steps to find the market value of your property. You can only know the exact condition of the property when you check it out in person.
When you do so, make sure to take quick notes of things that can impact the price such as additions, upgrades, amenities, the proximity of the property to the main city, features, safety factors, and so on.
- Deciding the market value
While deciding the market value of a property, consider all the research you have done until now. Your research considerations must include everything likely to affect the property prices.
To find out the market value of the property, divide the price of the competitors by their square footage. You will get the price per square foot for every property.
Calculate the average of these prices. Now, multiply this price by the number of square feet of your property to get the value of your property.
Furthermore, you can find the market value of your property by deciding where your property lies in the established price range. This is a crucial step in real estate analysis as it determines the profits that you will gain by selling the property at market value.
Make sure that you perform your research while performing a real estate market analysis and do not rely on a real estate agent completely. This is necessary to keep yourself away from any manipulated information.
Gathering information on your own helps you get transparent information and make the right decision for yourself. You can obtain the required information from unbiased sources like the internet, newspapers, online investment platforms, social media platforms, real estate analysis websites, investment clubs, and community websites.
Be sure to weigh the obtained information correctly to find the best real estate deal for you.
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