How to do a Comparative Market Analysis

Comparative market analysis has never been easier with this simple guide! Luckily, you do not need to go to real estate schools to learn about investing in income properties. More importantly, you won’t need it to conduct comparative market analysis for your income property either. So, what is comparative market analysis? Why does a real estate investor need it? And how can you perform this type of real estate analysis for the best real estate investment?

First, what is comparative market analysis in real estate investing?

Comparative market analysis, aka real estate market analysis, is a term that all real estate investors will come across at least once throughout their investing career. In short, CMA is a type of real estate analysis that is a part of the property valuation process. However, it deals more with the investment property as a whole in comparison to other similar investment properties within the desired location. As a result of this property analysis, you’ll be able to determine the fair market value of the investment/rental property. Not only that but also you’ll be able to determine the profitability potential of that same property.

Second, why do real estate investors need to perform a comparative market analysis?

Of course, everything you do is for a reason. Thus, what would be a better reason for conducting CMA than spotting the best real estate investments in the market?! Well, here is what we mean in detail:

Performing CMA will help you determine the fair market value of your property

As we have mentioned before, comparative market analysis helps a real estate investor to figure out the actual market value of real estate properties. As for how, it’s easy: by comparing the subject property to others that are similar in that area.

Regardless of whether you are the seller or the buyer, a comparative market analysis is key. The reason is that you compare the subject investment property to others that share the same features. These features include square footage, condition, location, the age of construction amongst other features. Therefore, as a buyer, you’ll be able to strike the best real estate investments. It will also protect you from overpaying for an investment property especially if you are investing in rental properties (we will talk about the reason later on). As for the seller, he/she will be able to set a price that is decent yet competitive still. At the same time, it would have protected you from having your properties listed for too long. In other words, it will enable you to sell your property faster.

Performing CMA will help you decide where to invest in real estate

Location is key. In fact, the best real estate investment is situated in a perfect location. Therefore, performing neighborhood analysis (a part of comparative market analysis) will definitely assist you in avoiding bad locations for your investments. After all, your purpose is making money in real estate rather than wasting your time and resources on trying to figure out whether certain real estate properties are worthwhile or not!

Third, how do you perform comparative market analysis when investing in real estate?

To perform a comparative market analysis, you simply need to find real estate comparables, in other words, real estate comps. Once you find them, it is all a matter of comparison. So, what are real estate comps? And how do you find them? Here is what you need to know:

What are real estate comps?

A comparative market analysis is all about comparing an investment property to others that are similar. This is the part where real estate comps come into play. The properties to which you’ll compare the subject property are the comparables. Of course, they should match in terms of size, location, condition, and other features.

How to find real estate comparables to conduct comparative market analysis

There are three main ways that we suggest for finding real estate comps:

Home appraisal

The most common way of getting real estate comps is getting a home appraisal. A real estate appraiser is a professional who knows all about comparables in the local market. By hiring an appraiser, you will get an accurate estimation of the property’s value. Also, their statement is official and is trusted by mortgage lenders, which is essential for your business. So, it would be easier for you to finance your real estate investing business. Finally, what would be better than saving the time on trying to do it yourself?! After all, despite the appraisal costs, you are getting insights from an expert in the arena.

Property listings

Another way to find real estate comps is to check property listings. What you need to do is check the following:

• Current property listings: These are the ones that have been listed for sale very recently and are still not sold.
• Pending property listings: These are the ones that have a purchase contract in place, but haven’t actually been sold yet because certain conditions haven’t been met.
• Listings of properties that have been sold recently: By that, we mean in the last 6 months. They are great indicators of the latest market trends.
• Expired listings of properties: These would be great comps as they reveal properties that are over-priced. So make sure you check that out as well.

If you still have questions, please contact your local realtor and they can do a CMA for you.