Market Analysis: Why This Might be the Most Important Section in an Appraisal
Categories: Commercial Appraisals, Development, Property Management, Real Estate Appraisal, Real Estate Tips
The Market Analysis section in an appraisal report contains precious information that directly influences the value of a property and also provides priceless insight into a myriad of data relating to the financial feasibility of a property. It is common for many prospective users of an appraisal report to ignore various sections of the report and focus solely on segments that indicate property value. The downside of this approach to valuations is that the reader, therefore, misses key insights into the subject market that can benefit the owner, buyer, seller, or lender.
Highest and Best Use Application
The impact of the marketability studies in the Highest and Best Use section is perhaps the most meaningful—highest and best use refers to the utilization of a real estate in a way that such property will yield the greatest economic benefit for the owner or operator of the property. These studies provide valuable information for the highest and best use decision. While it would be easier to read only the Highest and Best Use section of an appraisal, the hard data that support the financial feasibility element of the highest and best use conclusion is found in the market analysis. In the Market Analysis segment, you can expect to find the ‘what’ and ‘why’ of a property’s marketability and feasibility.
Typically, the best use is consistent with the usage of surrounding properties and complies with existing and emerging zoning policies. Also, the Market Analysis section provides the figures required to identify the use that could lead to a higher profit potential (relative to that derived from the existing use) and making purchase or finance offers that leverage this potential.
One of the more overlooked aspects within a commercial appraisal market analysis is a review of the primary business(es) or tenant(s) occupying a property. Beyond surface-level information, many reports will address a business’s history at the subject, as well as their competitive market and long-term potential at the site. Businesses, schools, churches and other special-use properties can have some of the more interesting and insightful analyses into their operations. Understanding not only the property, but the use and functionality for the current occupants help to provide a more holistic comprehension of the subject and make investment decisions that are guided by extensive research and objective statistics.
Local and National Economic Information in the Market Analysis
Being well informed on the inner workings of the market influencing subject value is always a good idea, regardless of the locality or economy. A well-rounded report serves to cover market trends and economic obsolescence of the location more thoroughly. Fortunately, nearly all Market Analysis sections will (to varying degrees) assess the local and national economic factors that are directly affecting both the subject property and the economy as a whole. The best reports will further include an array of compelling charts and graphs to pair with the data presented in the text. Experienced local appraisal firms strive to provide the most recent and accurate data on these topics; these companies can be reliable sources for important economic and market information, as well as assisting in interpreting the results generated.
It’s great that you mentioned how a home appraisal report tells you information about a property’s value. My fiance and I are looking at property options to purchase a house. And we were down to two different options, but we want to be sure about their exterior and internal conditions. Plus, we might want to sell it in the future, and we want to know its real value. That’s why we found your article really interesting and helpful. We’ll be sure to look for a real estate consultant to inspect before we make any decision. Thanks for the information about the importance of market analysis.