Beginner Tips for Understanding the Real Estate Market
November 3, 2022 Mark MacFarlane

Beginner Tips for Understanding the Real Estate Market

Posted in Home Buying, Home Selling, Investment Property, Real Estate

Beginner Tips for Understanding the Real Estate Market

Market Dynamics

When buying or selling a home, you must understand the real estate market to help you price your home right or make the correct offer. Investors must also learn about their local markets when investing in rental properties or flipping homes. In a hot market, it’s easy to make the wrong decision, whether you’re a buyer or a seller. Therefore, successful investors, including buyers and sellers, must understand the dynamics of real estate market. On the one hand, understanding the market can help sellers accurately price their homes to prevent them from staying on the market too long. Meanwhile, buyers can set expectations to help them understand what they can and can’t afford, allowing them to prioritize their needs and wants.

Here are a few tips to help you understand the real estate market to make a better decision, whether you’re applying for a mortgage, trying to sell your home, or looking into residential loans.

discuss buy my house options with a friend over drinks

Work with a Real Estate Agent

If you’re just starting and trying to learn as much as possible about the real estate market, you may not need an agent yet. However, if you plan to buy or sell a home within the next few months, a real estate agent can help teach you about the market and help you make the best decision. First-time home buyers can especially benefit from real estate agents because they don’t cost anything for buyers. Instead, they’re paid by the home seller. Real estate agents can also help you with understanding your credit and assist with credit management.

Real estate agents may not always have the most experience in working with some buyers and sellers, including investors. They can also get distracted by market activities they monitor daily, making it difficult to see the bigger picture for long-term investors.

Since agents primarily work with buyers and sellers, they focus on those markets rather than helping investors find rental properties. However, you can still find a specialized real estate agent whose main focus is working with investors if you decide you need extra help.

It is time to plan and keep track - journal

Understand Historical Data

Historical data allows you to see what’s already happened in the market. You can review market performance reports from the National Association of Realtors (NAR) or other online sources to make it easy to understand what properties sell and for how much. Buyers should look at the historical data on the houses they’re interested in purchasing to find the right time to buy. In contrast, sellers should look at the historical data of homes in their area to see what types of features can increase their home’s value.

Look at the Neighborhood

Always learn as much as you can about the neighborhood to help you understand how much homes can sell for. For example, you can upgrade a home as much as you want, but if it’s the most expensive home in the neighborhood, it will take longer to sell. You should also learn about the different types of buyers and other factors, such as population and job growth, to help you understand whether or not there will be demand for homes.

Always consider neighborhood amenities. For example, if the house has a swamp for a backyard or is located on a major highway, you may choose to move on to the next one. When looking for a home to buy, you must consider the amenities that can affect the home’s price and whether or not the home has been upgraded. For example, homes on a busy street are typically less expensive because of the potentially annoying sound of the road. While this is great for buyers who don’t mind buying a great house for less, it can affect how much the home can sell for in the future.

signing contract to buy house

Get Property Value Estimates

Look at recent home sales in the neighborhood to calculate the average price per square foot of the homes in the same area. This can help you form a ballpark estimate of a home. In addition, you can use online databases to learn about home prices in the neighborhood. If you’re lucky, you may be able to find a home with the same features as yours and find out what it sold for to give you the most accurate estimate of how much a house is worth.

Of course, these numbers won’t give you a completely accurate home value because they don’t take into account different aspects of the home, including any recent upgrades or things that could decrease the value.

Planning and long term strategies are key to success

Find Comps

Comparables, also known as comps, can help you begin your market analysis. Always select at least six comparable properties, three of which have sold recently. When looking at comps, choose homes that are as close to the one you’re selling as possible. For example, they should have the same number of bedrooms and bathrooms, similar square footage and lot size, comparable features, and be located in the same neighborhood.

With the comps in hand, you can calculate the average selling price to give you a more accurate estimate of how much you can sell a house for.

working on a computer - Research is key to success

Supply and Demand

Home values change every year based on the current market conditions. You’ve most likely heard of buyer’s and seller’s markets based on what’s going on in the market at any given time. Neighborhoods contain many homes, but only a small percentage of those homes are for sale at one time. This is known as the supply. Meanwhile, the demand is the number of buyers looking for a home at any given time. When there are more homes for sale than buyers, it’s called a buyer’s market because buyers can choose the best home based on their budgets.

Additionally, sellers may have to reduce their asking prices just to get offers, giving buyers a better deal. However, when there are more buyers than there are sellers, home values increase dramatically, and you can expect to see bidding wars. A seller’s market means sellers can price their homes higher and still get tons of offers because there’s not enough to supply the demand.

Of course, supply and demand shift based on many factors, including the economy. If you’re ever unsure whether you’re in a buyer’s or seller’s market, you can reference the NAR to find housing market data. They track the volume of closed and pending sales while providing data analysis into current supply and demand.

Magnifying glass to inspect house as-is

Market Direction

You can determine the market’s direction based on median home prices. However, this data might not always accurately reflect what type of market you’re in. Since the median home price is the middle number on a list of homes sold, it’s not the average, so if many homes are sold at high prices with few sold at lower prices, the median can be relatively high, indicating a seller’s market.

Of course, it depends on the type of properties being sold since some condos and apartment communities will sell for more than a single-family home. Still, looking at median prices over a period of time can show you the general direction of the market. This can help you determine how much you can expect to pay for a home or how much you can expect to sell a home for.

Final Thoughts

Understanding how the real estate market works and the types of fluctuations you can expect to see can help buyers and sellers make better decisions. If you’re not working with a real estate agent, it’s up to you to research home values in your area to price your home right or buy a home with the best value for your budget.

Article Written By Ashley Nielsen

Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer where she shares knowledge about general business, marketing, lifestyle, wellness or financial tips. During her free time she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.

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Beginner Tips | Understand Real Estate Market | OutFactors – Dallas Fort Worth, Texas