Whether you’re buying or selling a property, the real estate process is not an easy task. There are so many things you need to take into account – the location, the neighbourhood, the amenities available nearby, the people and most importantly, the condition of the market. If you’ve dealt with properties before, then you will know the importance of knowing and understanding the market before taking your first step.
The real estate industry is considered to be quite lucrative, but it can also be a minefield if you don’t watch where you’re stepping; your dream house could turn into a nightmare within a second. While virtual real estate tours have given buyers and sellers and homeowners the convenience and ease of business that they’ve always desired, it hasn’t exactly reduced the risks that come with the trade.
According to successful real estate investors, money is always made when a property is purchased, not sold. Before purchasing or selling a property, a real estate market analysis should always be done to ensure that a property is priced reasonably. It’s important to understand the difference between a real estate market analysis and an appraised value, which is calculated by a skilled appraiser. A subjective comparable market analysis provides the seller with details on the valuation of similar houses in the city.
So, before any further ado, let’s get into the how’s of a real estate analysis.
1. Look at Historical Data First
It is imperative to look back and find out where the business has been, in order to fully grasp where it is headed. Online reports give you easy access to the real estate market data, such as the values that are recorded, how much a property is selling for and the kind of location the property is in.
2. Observe the Pricing Trends
Observing price patterns is a simple way to get a basic understanding of the local real estate market. Acquire reliable and first-hand information about current market patterns and compare them to previous price trends. This will allow you to evaluate the market’s growth and expansion over the last few decades and make an accurate forecast for the future. Take note of the wide range of prices for residential, industrial, and agricultural property in different areas and sectors of the industry. This will help you understand the market’s highs and lows, as well as the opportunities.
3. Take Key Market Cues into Account
Begin by asking yourself, “How long do you want to stay in this house?” If you’re looking for a long-term home, look for a place with good schools, several major employers, and moderate population growth. If you’re looking for a short-term investment, search for hot places where investors are increasing value. Short-term equity gains can outpace long-term appreciation. Be aware that these markets can be cyclical, so be ready to sell when local prices reach their height.
4. Select Some Comps
Select six comparable properties within your neighbourhood. Three should be properties that have sold within the last few months, and three more that are currently on the market. During the selection process, look for the following:
· Houses with an equal number of bedrooms and bathrooms.
· The square footage of the homes should be within 10-20 per cent of your intended purchase.
· The houses should have a similar original construction date, architectural design and number of floors or stories.
· Houses with a similar lot size and shape.
· Houses with similar features like a free-standing garage, outdoor swimming pool or patio deck, and scenic views.
· Choose properties in the same neighbourhood and preferably on the same block.
· Houses that are located in the same school zone
Selecting these comps will help you understand the real estate market better.
5. Decide the Market Value
You should have a price estimate for what your property is worth based on your analysis. Consider everything you saw while walking through the house and how it would affect the price. Then divide the sale prices of the equivalent homes on your list by their square footage to determine the price per square foot for each house. Multiply the average price per square foot of your comps by the square footage of the home you choose to sell or purchase. Finally, figure out where your house fits into the existing price range. The market value of your home would be this figure.
Figuring out how to do a real estate market analysis on your own can be a daunting task, therefore, you can always take help from a realtor, who can help you understand and walk you through the process. You can also attend virtual property tours and site visits, which will help gauge the condition of the housing market to a certain extent