Real Estate Markets and Analysis
What the exam tests
Market analysis questions ask you to delineate the market, quantify supply and demand, and translate the result into a market conditions adjustment.
Core tools
- Market area delineation: boundaries within which properties compete, supported by employment, commuting patterns, schools, and buyer behavior.
- Demand analysis: population, household formation, income, employment, purchasing power, and buyer preferences.
- Supply analysis: existing inventory, units under construction, planned projects, and vacancy. Vacancy above the natural rate favors buyers; below it favors sellers.
- Absorption: units absorbed per period. Months of supply = inventory ÷ monthly absorption.
- Market cycles: recovery, expansion, hyper-supply, recession, tracked through occupancy, rents, and prices.
- Exposure time is retrospective to the effective date - the time the property would have been exposed before sale. Marketing time is prospective from the effective date.
- Data: primary (your inspection, interviews, surveys) versus secondary (public records, MLS, published statistics).
Worked example
A submarket holds 480 competing apartments, 30 vacant, 60 under construction, with absorption of 15 units per month. Including construction, months of supply = (30 + 60) ÷ 15 = 6 months. If stabilized vacancy is 5% (24 units), current vacancy of 6.25% plus incoming supply implies soft conditions - supporting a downward market conditions adjustment relative to older comparables, or a longer exposure time.
Traps
Mixing exposure time with marketing time. Computing absorption without counting competing new supply. Importing a published index as the market conditions adjustment without checking it against local paired sales. Assuming a trend continues without evidence.