Location, location, location is perhaps the age-old adage that we have learned in real estate. The real estate market is dynamic, seldom static, and always in transition, with property values either increasing or decreasing. Hence, the importance of analyzing the market is immeasurable.
Market analysis forms part of the appraisal report. It is done prior to the selection of comparables and determining the market area. The appraiser analysis the economy, political, and regional situation, real estate developments, and their impact on the present and future land value. The purpose is simple, to know the present and predict the selling price of the subject property, if exposed in the market for a reasonable time.
In a typical assignment, the appraiser is customarily called in by a client not literally to know the “worth” of the property but to ask his judgment as to what the property would bring in a given real estate market. The market value of the property in a given market.
There are bricks-and-mortar defenders and the worship cost method as the most powerful in appraisal. But, the appraisers of today know that the materials of valuation flow from the real estate market. The cost approach is important but it should be anchored in the market analysis. In essence, the cost approach is based on the market. The cost of materials which is used in the cost approach method is derived from the construction supplies market. The cost of gravel and sand is high in Cebu but not in Leyte. The labor cost in Metro Manila is different from that of the provinces.
What comprises the market?
An appraisal is a market analysis- but what is the market? As we all know, the market is a place where buyers and sellers meet. It is composed of micro-market and macro-externalities. The micro market is where the action is- the seller meets the buyer, in a direct and competitive interaction that eventually results in a price determination. The macro externalities are the influencing factors like the economy, business condition, flow of money, inflation, and others.
The economic crisis has put real estate in a quandary. However, in a time of surging business and economic development, the real estate market also grows.
Appraisers should know how to identify the appreciating market. Like the imbalance of supply and demand, the presence of buyer and seller’s market reduced marketing time for active and closed sales, increase in sales prices, and the existence or absence of seller concessions and whether property condition impacts marketability.
The presence of several factors would be a strong indication that the market is appreciating and appropriate analysis and adjustments for the date of sale, and time to comparable sales become necessary to produce credible assignment results.
Thus, the true nature of appraisal is real estate market analysis.
Real LexEcon 