Market Research
How to Run a Real Estate Market Analysis, Step by Step
Nothing on this page states a market condition, a price level or a rate of change, because those are local and dated. Pull current figures for your own boundary from your multiple listing service and from published government housing series, and note the reporting period beside every number you quote.
A market analysis answers two questions with evidence: what is this property worth in today's conditions, and which direction are those conditions moving. Everything else in the exercise is bookkeeping in service of those two answers.
What follows is a procedure rather than a tour of metrics. It defines the boundary first, then the counts, then the ratios, then the comparable selection, and finally the limits a licensee has to state out loud.
Define the Boundary Before You Pull a Single Number
Market statistics are only meaningful inside a boundary that buyers actually treat as interchangeable. A county figure is close to useless for pricing a specific house, because a county contains several markets moving in different directions at once. The unit of analysis is a submarket: a school attendance area, a subdivision, a condominium project, a corridor of similar vintage and construction.
Set three filters and write them down. Geography, property type, and price band. A townhouse and a detached house on the same street are not competing for the same buyer, and neither is a starter unit and a move-up unit two zip codes apart. Every statistic you cite afterward inherits these filters, which is why they belong in the report rather than in your head.
Then set a time window and keep it fixed. Comparing a rolling ninety days of closings against a trailing twelve months of listings produces a ratio that means nothing. Pick the window, apply it to both sides of every ratio, and state it.
The boundary is also where candidates lose credibility with clients. A seller who has been reading national headlines is holding a number drawn from a population that does not include their house. Showing the submarket definition first is what makes the rest of the conversation possible.
The Measurements and What Each One Is For
Active Inventory
A count of units currently offered inside the boundary. This is the supply side by itself. On its own it says little, because a count is only large or small relative to how fast units are leaving.
Closings Per Month
A count of completed transfers in the window, divided by the months in it. This is the demand side, and it is the denominator that turns an inventory count into a duration.
Supply Duration
Active inventory divided by monthly closings, reported in months. It answers how long existing supply would last if nothing new were listed. Interpretation bands are conventions, not laws, so report the number and the trend rather than a label.
Marketing Time
Days from the date offered to the date a contract is accepted. Track the median rather than the mean, because a handful of stale units drags an average badly. Lengthening marketing time is the earliest sign a price level is not holding.
Contract-to-Ask Ratio
Contract price divided by the asking price in force when the offer was accepted. Compute it against the last asking price, not the original one, or reductions get counted twice and the ratio flatters the market.
Reduction Share
The share of currently offered units that have cut their asking price at least once. This moves before closed prices do, because sellers react to weak traffic long before a weaker closing is recorded.
Unit Price
Price divided by living area. Useful for comparing units of different size within one building type, misleading across types and across large size gaps, since the cost per unit of area falls as units get larger.
Withdrawn and Expired Counts
Units that left the market without selling. A rising count alongside stable closings usually means asking prices have drifted above what the submarket supports.
New Supply
Units newly offered during the window. Compared against closings it shows whether inventory is being replaced, drawn down or accumulating, which the static active count cannot show.
Selecting and Adjusting Comparables
A property-level analysis lives or dies on comparable selection. Work through these in order and document each choice.
Prefer closed transfers. Offered units tell you what sellers hope for; only a completed transfer shows what a buyer paid. Use offered units to describe the competition, not to establish the value conclusion.
Keep the comparables recent, and say what recent means for your submarket. Where turnover is heavy the window can be tight; where turnover is thin you may have to reach further back and account for the passage of time explicitly.
Match property type, construction era and style before you match anything else. A comparable of the wrong type requires an adjustment nobody can defend.
Match site characteristics: lot size, frontage, topography, and any influence such as a busy road, a waterfront, or a shared wall.
Match living area within a narrow band, and count finished space the way your market counts it. Below-grade finished area is treated differently from above-grade area in most methodologies, and mixing them inflates the comparison.
Adjust the comparable toward the subject, never the reverse. If the comparable has a feature the subject lacks, subtract from the comparable. If the subject has it and the comparable does not, add to the comparable.
Support each adjustment with market evidence rather than replacement cost. What a buyer paid for a feature and what it costs to install are different amounts.
Reconcile rather than average. Weight the comparables that required the fewest and smallest adjustments, state a range, and explain which one anchors the conclusion.
Record everything, including comparables you rejected and why. That record is what turns an opinion into an analysis, and it is what protects you when a conclusion is questioned later.
Where the Data Comes From and What Each Source Is Good For
Your multiple listing service is the primary source for a property-level analysis, because it is the only one that carries the full life of a unit: original asking price, every change, marketing time, withdrawal, and the final contract terms. It is also the one with the tightest geography. Its weakness is coverage, since transfers that never reached the open market do not appear.
County records fill part of that gap. Recorded deeds and assessment rolls capture transfers regardless of how they were marketed, along with ownership history, lien information and the assessor's characteristics for the parcel. The tradeoffs are lag and detail: recording takes time, recorded consideration can be reported in ways that obscure the real price, and the assessor's square footage is often wrong.
Federal statistical series supply the backdrop. Housing starts, permits issued, and the government's own price and rent series describe national and metropolitan conditions and are published on a fixed calendar with documented methodology. They are the right source for context and the wrong source for pricing one house.
Trade association and private data products aggregate and repackage these inputs, and public-facing automated valuations do the same at consumer scale. Treat any such figure as a starting point that has to be reconciled against the records you can verify yourself. Before quoting any number from any of these sources, check three things: what geography it covers, what period it covers, and whether it counts units or transactions.
Practical Questions About Market Analysis
How does a licensee's market analysis differ from an appraisal?
By who produces it, under what standards, and for what purpose. A licensee prepares a market analysis to support a pricing or offer decision for a client. An appraisal is an independent valuation prepared by a licensed or certified appraiser under recognized professional standards, and it is the document a lender relies on. Several states also regulate what a licensee may call the result and require a written notice that it is not an appraisal, so check your own rules before choosing a label.
How many comparables are enough?
Enough that the conclusion does not depend on any single one. In a submarket with steady turnover a small set of close matches is stronger than a large set of loose ones. Where turnover is thin, widen the criteria one dimension at a time, widening geography last, and disclose every criterion you had to relax.
What do I do when there are no sales at all in the subdivision?
Move outward in a documented order: nearby subdivisions of similar vintage and price band first, then a longer time window with an explicit adjustment for market movement, then a different but defensible property type. State the reach in the report. An analysis that admits a thin data set is more useful to a client than one that hides it behind three loosely related sales.
Should the analysis include units that failed to sell?
Yes, as evidence of the ceiling. Withdrawn and expired units mark asking prices the market declined to meet, which brackets the conclusion from above in a way closed sales cannot. Keep them in a separate section so they are never mistaken for value evidence.
How current does an analysis need to be?
Current enough that its inputs still describe today. Put the pull date on the document and refresh it before any pricing decision, a reduction discussion, or an offer. In a fast-moving submarket a report a few weeks old can be describing conditions that no longer exist.
Can I tell a client what the market will do next?
You can describe direction from measured trends and name the conditions that would change them. You cannot forecast, and you should not try. Report what the counts and ratios show, distinguish what moves early from what confirms late, and leave the decision with the client.