Determining your market

I always am reading articles about RE, and the phrase “learn/know your market” usually comes up. How exactly do you know/learn your market? Is the market basically the prices and time on the market properties are selling for, or is it something more?

For instance, I received a postcard in the mail about a week ago, and it shows a property listed in my area, that a realtor put up for sale. Its a 2100 sqft single family home, and it was put up for $218,800. So far, its been on the market for 15 days. Im assuming this would be considered normal considering the direction RE is going right now?

Thanks for any input.

Knowing your market means that you got that card in the mail and you’re in SoCal and you said, “Wow, this could be a great deal” or you live in an area where that price is a correct RETAIL price for the area and you shrugged and said “That’s about a median retail price here” or you got the card and said, "Wow, the Realtor’s trying to play a quick game of “Who’s your Daddy?”…

$218K doesn’t mean anything if you don’t know your market. It could mean an excellent deal or it could mean “Ouch, stop it, that hurts - if you poke me with that again, I’ll break it off”!


The easiest method for determining your market is to knock on a few doors in that market and ask some very leading quesitons…

hope this helps…

Driving Your Comps
What you see on paper is only part of the story. In order to really understand the figures, you should see the houses you are comparing to your subject property. When your comps are SOLD houses, chances are you won’t be able to see the insides, but you can still tell a lot just by looking. This one is higher-priced because it has a new roof, and the landscaping is beautiful. That one is lower because the houses on either side are wrecks, and it needs work also.

On the other hand, you might be able to get a look at the insides. At least, you should try. Go up to each house and knock on the door. When the person answers, say these words to whomever answers, male or female: “Hi, my name is and my family and I are thinking about buying a house in the neighborhood. I noticed that you just bought your house. Would you mind if I asked a few questions?”

Most people will be willing to talk to you. Why not? You might be a new neighbor!

Here are the questions to ask, and why to ask them:

  1. Is this a safe neighborhood for young families, children and older people?
    You want to get a feel for how secure the neighborhood is. Always remember that just because you don’t feel it’s safe doesn’t mean the people who live there feel the same way. Never assume anything in real estate, and don’t let your personal biases affect your decisions.

  2. Have you found anything negative about the neighborhood that you weren’t aware of before you moved in?
    You want to find out what isn’t being talked about by the seller of your subject property. Are there noisy neighbors, a bully on the block, or drug dealers hanging out on the corner…? Do they now think they paid too much?

  3. Was there a lot of work done by the seller on the house, which was included in the sale price?
    This will tell you who financed any needed repairs, which will directly affect your estimate of Worth Value. If the $185,000 they paid for the house included $35,000 of repairs done by the seller, the actual Worth Value of the comp is $150,000, which changes the calculation of the Worth Value of your subject house.

  4. What about this house made you buy it?
    You want to know this because it will tell you what buyers are looking for and why this house stood out. Maybe your subject property has some of the same features, and you can push those when you turn it around and want to sell it. You may want to up your Worth Value a bit on your subject property if it includes these desirable features.

  5. Do you know of anyone looking to sell their house now?
    This will give you free leads to call on. Don’t assume that because they are new to the neighborhood they haven’t had a chance to meet people. You can only gain from asking this question.

Naturally, if they offer to show you around the house, take them up on it. Be ready to write information down about the house. And if there are exceptional items that were included in the purchase price, like a beautiful new kitchen or beautifully landscaped backyard, ask to take a few pictures. This is so that when you’re on your purchase presentation and the sellers says their house is just as nice as that one, you then can show them the indisputable difference.

When you do look around, make mental notes of the same kinds of things you will do in any home inspection and write down your notes afterwards. They will come in very handy later as you prepare to make an offer to the seller of your subject property.

While looking around, ask them if the house was in “this” (its current) condition when they purchased. You will want to know what new repairs or rehab work the new owners have done since they purchased the property so that you don’t take those items into consideration when comparing values.

When you are done, thank them, and try to “leave the door open” in case you have more questions later. Ask them if it is okay for you to drop by or call them in the next few days if you think of more questions that could help you make your decision on whether or not to buy.

Driving through a neighborhood to look at your three comps may take an hour, or more if you get a chance to talk to the new owners, but it is time well spent because you should be able to refine your Worth Value to a pretty close figure. Instead of a wide range of $204,600 to $226,424, you can probably zero in to a very narrow range – say, $200,000 to $205,000 if your property is in similar condition to the lower-priced comps, or $205,000 to $215,000 if more similar to the higher-priced comp.

When you go in for the actual deal, you want all the ammunition you can get. You want to be able to explain the figures to the seller using concrete examples of other similar houses. You want to not only appear knowledgeable, but to be knowledgeable.

This leads us to the next two or three houses, which you will be visiting. As I stated earlier, you will only use “SOLD” and possibly “Sale Pended” as comparables; the exception would be that if the market has taken a down turn, you will also want to view active listings. You want a reasonable knowledge of the houses in the area that the sellers are basing their information on. You’ll gather this knowledge by viewing the two or three active “For Sale” houses within your search criteria.

Where this step fits in is up to you, but you should do it sometime in the process of preparing to buy your subject property. The purpose of this step is to take a look at some of the other properties for sale in the neighborhood in which you are buying. The reason this is important is to get a feel for your competition as well as to get a feel for the demographics of the neighborhood. What is an acceptable level of maintenance, home improvement, landscaping, etc. in this neighborhood?

Call your real estate agent and make an appointment to see two or three listed houses that are based loosely on the same guidelines as your comp properties, but not necessarily as strict. Ask for houses as near (distance-wise) to your subject property as possible, even if they are not the closest fits to your comp guidelines. You will not be using these houses to help build a Worth Value on your subject property.

If you don’t want to waste your agent’s time, just ask him if you can call and make the appointments with the listing offices yourself under his name. If that’s okay, call the listing office and make an appointment so that the seller will be there to open and show their house. You will be able to find the listing office’s phone number from the For Sale sign posted on the property or from the MLS listing.

You can also bypass the agent altogether and just go knock on the door of the listed houses, but you will be much more successful and efficient by consulting with the agent and making appointments.

Also, while touring the neighborhood, if you see a FSBO (For Sale by Owner) sign, by all means go knock on the door and ask to preview the house. When previewing the house, besides price and condition, you will be looking for both motivation of the seller and whether their house fits inside of your business model. It is perfectly acceptable to say to them that you are buying a home in the area and try and buy their house too.

Word of caution: no matter what you do, it is extremely important not to be late to the appointment that you have scheduled. The only time you should consider being late or missing your appointment is if you can purchase this FSBO now at the price point that fits your business model. If a seller wants to sign a contract, by all means put them under contract. This is a good reason to carry multiple purchase agreements with you. I always do.

Again, most people will be willing to talk to you. Ask the sellers of the “active” houses for sale a few questions:

  1. Is this a safe neighborhood for young families, children and older people?
    You want to get a feel for how secure the neighborhood is. Always remember that just because you don’t feel it’s safe doesn’t mean the people who live there feel the same way. Never assume anything in real estate, and don’t let your personal biases affect your decisions.

  2. Has the neighborhood changed recently?
    You want to find out what isn’t being talked about by the seller of your subject property. Are there noisy neighbors, a bully on the block or drug dealers hanging out on the corner…? Do they now think they paid too much?

  3. Will you be offering any concessions to the buyer?
    This will tell you who is going to finance any needed repairs, which as we mentioned earlier, will directly affect your estimate of Worth Value. Or maybe they are willing to help the buyer with their closing costs. You are looking for anything that reduces the Worth Value.

  4. How did you set this sales price and are you offering any special terms?
    You want to know this because it will tell you how motivated the seller is and whether or not this house is something you may have the opportunity to purchase. Understanding the seller’s motivation is crucial in determining Worth Value. Some sellers just put a price on a house and hope they win the lottery. You will want to know if the competition is in fantasy land or reality land.

  5. Why are you selling?
    If during the last four questions this question wasn’t answered by the seller, it will be important to ask so you have a clear picture of the motivation. I ask it last because by then I have built enough rapport with the seller that they tend to be freer with the truth.

Help Yourself to a “Six-Pack”
If you have time, you should also do a “six-pack” on the subject property. A six-pack is not six cans of beer. It is knocking on the two doors on either side of a property and the two houses across the street from the property. A six-pack will reward you handsomely with determining the motivation of the seller, as well as giving you possible leads.

Here are the questions and script for this mini-interview:

Hi, my name is . I’m thinking of buying the house <next door/two doors down/across the street> and was wondering if you could answer a few questions for me.

  1. What is the neighborhood like?
    This will tell you if they love living there or hate living there, and either response is okay. If they say they hate living there, ask them if they are renting or are the owners. IF THEY ARE THE OWNERS AND HATE LIVING THERE, TALK TO THEM ABOUT SELLING YOU THEIR HOUSE!

  2. Is there anything about the owners of the house that I may need to know before I buy it?
    They will spill the beans if they don’t like the neighbors and won’t say a word if they love them. It is worth asking. You are looking for the reason they are selling: divorce, job transfer, money problems, whatever it is. Out of the six-pack, chances are at least one “can” will be full of gossip. The more you can know about the seller, the better prepared you will be when dealing with him and negotiating.

  3. What kind of repairs do you think ought to be done to that house?
    You might be surprised at how much the neighbors know about the house, and their opinions of it. You will probably hear more than you could possibly find out by visual inspection from things like what’s buried in the backyard to the fence being propped up by sticks.

  4. Have the sellers lived there long?
    You will already have this information from your property profile, but you are setting the neighbor up for your next question. Plus, you may find out information the profile doesn’t show. Maybe the family has lived there for years, but the profile shows a sale a year ago. Turns out it was a sale from one son to another and they both still live there. You can bet the sale price for that house isn’t a good one to base a Worth Value on.

  5. Do you have any intention of selling soon? (or moving soon, if they are renters)
    When you are ready to sell the subject property, after you buy it, you want to know if there will be another house right next door also for sale. If there will be, you probably want to be selling that one as well. Also, if the neighbor will be selling soon, that gives you some ammunition when making your offer on the subject property – it’s not like his is the only house you could buy.

You now have everything you need to do an exact Worth Value calculation. You’ve already narrowed it down pretty closely. Now just plug in what you have found out from the comp owners to adjust the comp values up or down slightly, and fit the subject property into the higher or lower end of the new range, depending on what the neighbors said about the house.

Let me go over that again, as it is a three-step process.

First, based on the information you got from the new owners of the comps, take the sale prices from your comp properties and adjust them downward if they included seller repairs, and upward if there was some special deal (like a family member to family member sale) you discovered that artificially lowered the price. Use these adjusted prices to come up with a new average price per square foot, and apply that to your subject property’s square footage to come up with a new Worth Value range. It probably won’t be all that different from your original one, but it will be more accurate, i.e. you can have more confidence in it.

Second, based on your viewing of the “active” houses for sale, come to know the other houses being sold if you want to buy this property. You will be able to handle the objections about unreasonably priced houses. You will not use these houses to determine your purchase price; only as an example of what “this amount of money” will buy.

Third, take what your six-pack neighbors said about the subject property and use it to mark the Worth Value within the new range you just calculated. If it needs a lot of repairs, it falls at the low end of the range. If it has been lovingly maintained by a long-term owner, it will be at the high end of the range.

What the neighbors said about the sellers themselves does not affect the Worth Value. That information will affect your negotiations, but has nothing to do with the house itself. You are trying to come up with an answer to the questions, “What is the house worth? How much would it sell for on the open market, as is, right now?”

Wow Michael…a bit “wordy” there!



What MichaelQuarles said. In other words you know how much the market price of a house in your area. That means that every other house just like the one you have will sell for $xxx given no stress or duress to buy or sell.

Funny, you said it in two lines…


Keith I was going to post a picture but I didnt have one that would fit just right! :slight_smile:

Keith I was going to post a picture but I didnt have one that would fit just right!

I think you could have painted a picture in the time it took to write that post!

Seriously, Michael probably said this, but I would just go look at 100 properties that are for sale in you target market area. Look at them inside and out. If at the end of that, you still don’t KNOW a property value just by looking, then go look at another 100! This is your business. This is your market. YOU should be an EXPERT in your market!

Good Luck,


Thank you all for your help, especially MichaelQuarles!

Does time on the market have anything to do with it? I would think if a certain property is for sale for a month, either the asking price is too high or maybe loans are being denied, etc.

Homes in this market (in most areas) are not going to fly off the market unless they are priced very low (considering current market conditions). If a house is listed for several months, it probably means that it is priced too high and no one else is willing to pay that much for it. There’s a property that I’ve had my eye on that falls into that category. It’s listed quite high compared to what it should be based off the income it would produce. No one’s buying it where it is now. I’ll submit a low offer and see what happens.

Look at average days on the market (DOM) in your area to see if a house has been on the market a long time or not.

Some houses will be on the market for longer than the average DOM but it can’t be bought by the average home buyer because it needs work. The houses I buy mostly are not habitable so a normal mortgage company can’t finance it. It takes a cash buyer or a buyer with a rehab loan. That means it stays on the market until I get around to buying it.

You hit on the key. A good deal will not be a retail purchase and thus not conform to the days on the market or the market price. The value (profit to you) is in the arbitrage between market and what you can buy it and fix it up for. Sometimes the seller doesn’t realize that he has to sell to you at a deep discount until the house has been on the market for a while. The last house I bought was on the market and got an offer in a couple of weeks. The buyer couldn’t close because of the property’s condition. It went back on the market. It happened twice more before I got around to it. They ended up dropping the price and I offered even lower that that.