“Market” – A word poorly understood, and often misused.

A gathering or place for buying and selling things.  It can be physical, or virtual, and involves at least one third party for competition.  Perfect competition is when you have many buyers and sellers.  A real property market is seldom or never perfect.

A “market” for houses (Per Investopedia) requires:

  1. An arena – the marketplace. (Let’s say our local MLS.)
  2. Buyers and Sellers. (Buyers with capacity and desire to buy, sellers actually desiring to sell.)
  3. One commodity. (For housing, it must be of a competitive size, location, quality, and such.)

It also requires competition, pricing, and freedom to transact.

For real estate, the best descriptive term is the competitive market segment.

It’s not the “marketplace” – on the MLS and in the agent’s offices.  It’s not all the real property in the city (houses, condos, gas stations, public parks and streets, convenience stores, and luxury penthouses).  Each property type may — and will have different ‘conditions’ at different times.

The only way to evaluate/analyze market conditions is to start with a carefully and clearly defined segmentation of buyers who desire the property type.

How does this affect trend analysis and time ‘adjustments’ for appraisers?

  1. The competitive segment must be cleanly defined.
  2. The specific ‘for sale’ properties must be identified.
  3. The probable buyer preferences must be fully specified.

The trend cannot include all the houses in the neighborhood.  They are not for sale.  Our main data set, our “population” of study can only be specific sales or listings

If we are to do a “market analysis,” that “analysis” must comprise the above three conditions – market conditions!

So what are “conditions”?  Conditions include all the defining characteristics and features that influence the patterns of buyer/seller interaction.

Per a web article by “SELL”,  there are fourteen types of market conditions!  These include:  financing, competition, demand, interest rates, purchaser models, effective purchasing power, inventory (listings), price levels, inflation/deflation, employment, ongoing availability,  stability/instability, buyer preferences/needs/perceptions, and finally, finally – regulations and taxes!

Whew!

To sum up . . .  In order to do market analysis (and time adjustments) as it’s supposed to be done, we must:

  • Know what a market is, as a clearly defined CMS© (Competitive Market Segment).
  • Use the specific “for sale” properties which would have competed on the date of value.
  • Clearly parameterize the property feature/characteristics preferences of our pool of buyers.

If we are to do a relevant time adjustment (price index), it must be based on all of the mentioned 14 types of conditions, not just the “market area” as required by USPAP Rule 1-3.  “Area”, (location) is but one of the dimensions required for a legitimate market analysis and trend analysis.

Market definition, market delineation, and market analysis come first.  Not “pick some comps.”

AT VALUEMETRICS.INFO, WE MEASURE MARKETS, NOT COMPARE COMPS.