Chapter 16 Flashcards
Market Analysis
The study of the supply and demand in a specific area for a specific type of property.
Real Property Market
Buyers and sellers of particular real estate and the transactions that occur among them.
Market Area
a property’s market area is the area from which its demand is found and that contains its direct competition.
Market areas are defined in terms of competition and vary for all kinds of real estate. The market area for a 40-year-old split level house may be other middle-age developments in similar neighborhoods around the city.
Market area analysis (also referred to as neighborhood analysis) is defined as:
The objective analysis of observable and/or quantifiable data indicating discernible patterns of urban growth, structure, and change that may detract from or enhance property values; focuses on four sets of considerations that influence value: social, economic, governmental, and environmental factors.
Macroeconomics
Study of the economy as an aggregate system, focusing on national/domestic production, national/domestic income, the supply of money, the rate of inflation, the national budget, the balance of trade, and the interrelationships among constituent sectors.
Microeconomics
The study of the economics of individual spheres of activity or patterns and behaviors, e.g., a firm, an industry, a retail market, a consumer segment, pricing, local employment, individual property performance.
Submarket
A division of a total market that reflects the preferences of a particular set of buyers and sellers, e.g., fast food restaurants as a submarket of the overall restaurant market.
A submarket is defined as:
A division of a total market that reflects the preferences of a particular set of buyers and sellers, e.g., fast food restaurants as a submarket of the overall restaurant market
Market segmentation is defined as:
“The process by which submarkets within a larger market are identified and analyzed.”
Disaggregation is defined as:
“The differentiation of a subject property from other properties on the basis of subclassifications with differing product characteristics.”
Supply & Demand
The analysis of almost any kind of market gets down to a study of supply and demand factors. We need to identify:
A property type
Particular property characteristics
The most probable users of this type of property (demand)
Available competing properties (supply)
Demand Analysis
Population trends
Income and wage levels
Employment types and patterns
Unemployment rates
Mortgage information
Land use patterns
Physical factors
Local government
Population Trends
The study of population trends is about as basic as it gets when we’re trying to analyze demand for housing. The more people there are in an area, the more houses that are needed.
Where can population trend data be located?
U.S Census Bureau
Employment types & patterns
Does the local employment consist primarily of:
Manufacturing?
High-tech?
Government?
Education?
Services?
Tourism and recreation?
Retail and small businesses?
Unemployment Rates - Questions to ask
Are the unemployment rates in general going up or down? What are the projections for the future? Are good-paying manufacturing or professional jobs going away and being replaced by low-paying, unskilled labor jobs?
Bedroom community is defined as:
“A residential community in a suburban area, often near an employment center but itself providing few employment opportunities.
Local Government
Local Government
The posture of local government, both spoken and unspoken, can affect the demand for real estate in an area. Some governments encourage any kind of growth and others are happy with the status quo and try to put the brakes on development whenever they can.
American Factfinder
On one page you can see demographics about
Population
Ages
Household size
Family size
Housing units
Total
Rented
Vacant
Education levels
Labor force
Median income
Median housing price
Mortgage information
When checking Demand Analysis
When completing demand analysis for commercial properties, we may research and analyze factors such as:
Population of the demand area
Per capita and household income
Percentage of household income spent on retail purchases
Rates of sales retention in the trade area
Vacancy rates in the market area
Transportation facilities
Land use patterns and the direction of growth
Supply Analysis
In supply analysis we may research and investigate:
Existing stock
Volume of new construction
Planned construction - new building permits
Availability and price of vacant land
Costs of construction
Properties offered for sale
Conversions in progress
Availability of financing
Financing Availability
It’s a fact of life that houses, commercial buildings, condominium units, apartment buildings, etc. are not going to get built without adequate availability of financing. Financing availability is an essential and ongoing component of the analysis of real estate supply
Market Study
An analysis of the general market conditions of supply, demand, and pricing for a specific property type in a specific area.”
Absorption rate
“Broadly, the rate at which vacant space in a property or group of properties for sale or lease has been or is expected to be successfully sold or leased over a specified period of time.”
A residential absorption rate may predict that there is a sustainable need for an additional 500 units per year. Or perhaps it may predict a short term need for 200 units now and then 100 more a year after that.
If there is a demand for 500 units a year and there are currently 1,000 units for sale, then we are looking at a two-year supply currently on the market.
Absorption Period
The actual or expected period required from the time a property, group of properties, or commodity is initially offered for lease, purchase, or use by its eventual users until all portions have been sold or stabilized occupancy has been achieved.”
This is a crucial time frame for developers. If I build 30 new houses, how long will it take until they are all sold? If I build a new apartment building with 60 units, how long will it take before they are all rented? If I build a new office park, how long will it take until all the sites are sold?
A marketability analysis is defined as:
“A study of how a specific property is expected to perform in a specific market. A marketability analysis expands on a market analysis by addressing a specific property.”
difference between market analysis and marketability analysis
A market analysis studies the supply and demand for a specific type of property, e.g., new single-unit dwellings with 3 bedrooms, 2 bathrooms, and 1,500-1,600 square feet.
A marketability analysis differs from a market analysis in that it addresses a specific property, e.g., the new single-unit dwelling located at 123 Elm Court.
Feasibility Analysis
“The study of a cost-benefit relationship of an economic endeavor. (USPAP, 2020-2021 ed.)”
A feasibility analysis often is conducted as part of a study in developing an opinion of highest and best use. Remember, the third criterion for highest and best use is financially feasible. This means the appraiser must analyze whether a potential use is financially feasible in order to determine whether it is the highest and best use.
A large local employer announces plans for immediate expansion, which will add 400 new jobs. There are only 180 houses available for sale in the market at this time. What is MOST likely to happen in the near future?
the number of building permits issued will increase
a “buyer’s market”
the new jobs will displace old service industry jobs, so there will be no net gain
property values will decline gradually
Answer: The number of building permits issued will increase
In an urban market, an appraiser may note a trend of converting
apartments to condominiums
large single-unit homes to multi-unit apartments
apartments to co-ops
all of these
Answer: All of these
In residential properties, which would NOT be a factor in demand analysis?
income and wage levels
mortgage information
building permits issued
land use patterns
building permits issued
Which of the following would NOT be considered in supply analysis?
existing stock
conversions in progress
properties offered for sale
population trends
population trends
3 of 8
Identifying the most probable user for a particular type of property is a component of ___________ analysis.
economic base
macroeconomic
supply
demand
Demand
A subject property’s market area would be defined as
the local municipality (e.g., city, borough, town)
the area within one-half mile for an urban area, and within three miles in a suburban area
the area from which demand comes and that contains its direct competition
the geographic area within five miles of the property
the area from which demand comes and that contains its direct competition
