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Comparative Market Analysis (Real Estate) Definition
Comparative market analysis is the process of attributing a value to real estate based upon the valuation given to similar or comparable properties. Comparable properties are those with similar characteristics, such as location, square footage, lot size, style of building, age of building, interior finishes and amenities.
A Little More on What is Comparative Market Analysis for Real Estate
Real estate analysts and real estate agents generally undertake comparative market analysis to determine the value of properties listed for sale in a given area. This is helpful to sellers who need to set a price for available properties and buyers who need to understand a property’s value when making an offer or seeking third-party financing.
The process for comparative market analysis begins with identifying properties that have comparable characteristics to the property being valued. The main characteristics of comparable properties is location (the same neighborhood is best), square footage of the building, lot size, style of building, age of building, interior finishes and amenities. This task can be somewhat difficult – particularly in residential real estate – as customer preference plays a large role in valuation.
Once you identify comparable properties, you verify the appraised value and/or previous sale price. The sale price should be recent, as properties change value considerably over time. You can then develop ratios for the real estate value to specific property characteristics (generally, square footage and lot size).
The derived value ratios can be used to derive the value of similar properties.