Final Keyword: Market Area

In appraising a piece of real property, analyzing the location’s market area is a vital component in determining the property’s market value. First of all, a market area is defined as “the surface over which a demand or supply offered at a specific location is expressed” (Rodrigue). Moreover, this surface may also encompass many districts and neighborhoods; it is “an area where people live and work” (Ratterman). Market area analysis is important and beneficial for potential buyers because it enables a broader range of options in terms of supply and demand in the area.

For commercial property investors and purchasers, in particular, market area analysis helps decide which location is best for their business to operate at. Factors that control this analysis include income level, demographics, sites surrounded by necessary resources, as well as transportation. Having proper accessibility is important because it impacts a property’s ability to attract residents and cliental (Rodrigue).

A widespread trend in some market areas may be to change one original use of property into a completely different one. This is done for many reasons, particularly in areas that serve no further purpose remaining the way they’ve been. This may be due to buildings being too old or too costly to continue to repair; thus, the building is torn down and reconstructed into something far more feasible to the owner. An area may be in a revitalization stage in efforts to improve economic growth or to fulfill the supply of homes in potentially high demand (Ratterman).

Competition is another large factor in market area analysis. Price is the basic, number one source of competition, but attributes involving space and distance are also key foundations. Businesses selling the same good or service may be spread accordingly to the area’s range of population density, location of their competitors, and the cost of transportation. This is referred to as market coverage, and plays a big role in establishing an appraised value of real property in that area (Rodrigue).

Whether a buyer is looking to invest his or her money in a residential purchase or a commercial property, market area analysis is one of the best tools in appraising the value of that property. Because a market area includes not just a single neighborhood or district, market area analysis gives the buyer knowledge of the property’s deeper, outside environment. Incorporating the market area when determining the property’s market value allows the purchaser to make a much more informed decision regarding whether or not that property is exactly what they are looking for.

Rattermann, M. R. (2009). The Student Handbook to The Appraisal of Real Estate. Chicago, IL: Appraisal Institute.

Rodrigue, Dr. Jean-Paul. Market Areas Anaysis. Hoftsra University.