Comparative market analysis
“Comparative market analysis” means nothing more than doing some comparison shopping before you buy any real estate. Just as you would compare and shop prices before buying new furniture or a car, so, too, you need to compare and shop prices for similarly situated properties before making a purchase. The difference in this instance is that you are comparing a building that is for sale with ones that have already been sold.
What do you need to compare? The major considerations are:
Number of units
Square footage of the improvements (structure)
Square footage of the lot (the dirt)
Condition of the surrounding neighborhood
Age and condition of the building
Income-producing capability (current rents versus market rents)
Parking (garages, pads, carports, or none)
Amenities (view, fireplaces, multiple baths, pool, patios or decks, etc.)
The idea when conducting a comparative market analysis is to locate a few properties in the same or similar neighborhood that have recently been sold. As outlined previously, look for properties that have traits similar to the one you want to buy. In a perfect world, the sales should be within the past six months—the more recent, the better. Once you gather all the data, your job is to compare and contrast it to determine a fair price for the building you’re considering.