What is a Market Analysis in CRE?

What is a real estate market analysis?

A market analysis in real estate, or Comparative Market Analysis (CMA), assesses a property's value by comparing it with similar properties in the area. It considers factors like location, size, condition, and the sale prices of recently sold nearby properties. This analysis helps sellers set competitive rents or sale prices, and helps investors make investment decisions aligned with current market conditions.

Here are the key components of a market analysis in real estate:

1. Comparables (Comps): This involves looking at similar properties that have recently sold in the same area. The properties are compared based on features such as size, location, condition, and amenities. Adjustments are made to the value of the subject property based on how it differs from the recently sold comparables. In multifamily, this often includes separate sets of properties for rent comps, expense comps (or expense benchmarks), and sales comps.
2. Current Market Trends: The analysis will consider whether the current market is a buyer's market (where supply exceeds demand), a seller's market (where demand exceeds supply), or a balanced market. It will also look at the trends in price fluctuations, whether the market is appreciating or depreciating.
3. Property Specifics: The analysis will take into account the specific characteristics of the property in question, including its condition, age, size, layout, and any unique features or improvements that may affect its value.
4. Location Analysis: Since location is a critical factor in real estate, the market analysis will evaluate the subject property's location, considering factors such as the quality of local schools, crime rates, proximity to amenities, and neighborhood desirability.
5. Supply and Demand: The analysis will look at the number of similar properties for sale in the area (supply) and the number of buyers looking for similar properties (demand). This helps in understanding how quickly properties are selling and at what price point.
6. Economic Indicators: Broader economic conditions, such as interest rates, employment rates, and the overall health of the economy, can also impact real estate values and will be considered in the analysis.
7. Days on Market (DOM): This metric indicates how long properties are typically on the market before they are sold. A lower DOM can indicate a seller's market, while a higher DOM may indicate a buyer's market.
8. Price per Square Foot: The analysis will often calculate the average price per square foot for comparable homes that have sold in the area, which helps in establishing a baseline for pricing the subject property.

A thorough market analysis is crucial for making informed decisions in real estate transactions. For sellers, it helps in setting a competitive price that reflects the current market value of their property. For buyers, it provides insight into what they might expect to pay for a similar property and helps in formulating a strategic offer. Real estate brokers and commercial appraisers are typically skilled at conducting market analyses and use a variety of tools and data sources to create them.