REE 3043 Exam 2 Review 01 14 2016 Chapter 6 Market Research Structure of Market Analysis consist of 2 sets of studies urban economics marginal segmentation Who A market analysis identifies supply demand for a product o Demand prospective users of a real estate project buyers renters and their o Supply analyzing competition particularly important in setting prices and rents What Developers most frequent consumers but also government officials investors and characteristics lenders Urban economics location Identify city growth drivers what determines location of city activities Market segmentation differences in preferences or needs among market subgroups o What is your target market as marketing pros like to say ex housing market segmentation by income age size lifestyle condos v SFD s Challenge o RE data tends to cover all segments not your projects specific target market o Effective market research is often a matter of excluding the irrelevant Cycle of Mkt Research CREATE MARKET DEFINING STORY Whats the product whos the customer target market wheres the customer what is market area what does customer care about what aspects of product who is the competition collect data evaluate results research sufficient Yes end No refine research First analysis current condition and market trend implied by data object is to identify range of critical parameters key numbers tht characterize o Owner market sales projections quantities and prices o Rental market current future occupancy rate and rental rate growth needs to be done if story unconvincing or parameter range too wide Story approach BOTTOM UP begins w proposed project and its market segments then builds links to larger economy Refining the research Story approach vs Conventional o Issue unclear how developers investors choose proposed project Conventional TOP DOWN goes from nation to state to the city and finally to the project Property Market Research Example Elysian Forest planned unit development PUD PUD characteristics mixed density single family to townhouse to apartments smaller individual lots w o side yards common areas recreational facilities Elysian Forest was bold and sophisticated for a University city First PUD 900 units Home cluster Patio Home Pair Competitive Norm from Local most modern Market Defining Story o What is product Upper income high density ownership residences o Who are customers Top 30 of household income not top 8 not traditional o Where are customers Retirement buyers empty nesters single parents other family w children at home adults from within city o What do customers care about in Elysian Forest Good access to work good recreation social facilities distinct contemporary design o What is the competition No other comparable projects First Analysis Steps 1 Estimate number of households and market share in target market segment 2 Project total housing unit sales in target market segment 3 Estimate yearly sales to target market segment o Size of Target Market Segment Initial Data Collection Basic source U S Census American Factfinder o Projected Sales o o Sales to target market segment o Actual outcome for Elysian Forest built 20 speculative unites staffed a sophisticated and expensive sales center never sold one unit project went to foreclosure firm went bankrupt was destined to fail b c market was nontraditional segment that relied heavily on a small portion of the local population o Data sources in 3 examples Case 1 Elysian Forest American Community Survey Census primary source for household demographics Case 2 Palm Grove County Business Patterns Census of firms by size industry and location Case 3 Plane Vista Current Employment Statistics BLS employment by location and industry READ ABOUT OTHER TWO EXAMPLES IN TXTBOOK STARTING ON PAGE 140 Palm Grove Case 2 was a flop only one office building was completed and spent most of its life vacant Points about real estate market cycles Real estate sub markets differ in cyclicality office demand follow business cycles and is very cyclical apartments are less so since households must live somewhere Longer construction time leads to more cyclicality Key indicator used to evaluate where a property is within the cycle is permits Apartment vacancy rates ex Addt l tools for Real Estate Market Research 1 Geographic info systems GIS computer software system that allow one to manipulate and map with ease made analysis of Plane Vista possible widely used in store location research 2 Psychographics market segmentation research seeks to relate product preferences to attitudes interests opinions values and to demographics used in retail real estate but may apply to housing 3 Survey Research potentially powerful tool if used carefully stated preference vs revealed preference Risk ending up w meaningless questions or meaningless sample key preventative tools obtain review and advice from experienced survey researchers pretest Ch 7 Pt 1 Valuation Using the Sales Comparison Approach Intro Three Concepts of Value 1 Market Value most probable selling price assuming normal sale conditions appraiser determines it the value the typical participant would place on a property Investment value value a particular investor places on property Useful to buyers sellers 2 3 Transaction price price actually paid for the property happens when buyers investment sellers Why must market value be estimated Simon Property Group SPG Stock each share is exactly alike many transactions occur hourly with there are many active buyers and sellers shares can be moved and stored in companies w perfect competition all transactions are at market value no need for appraisals Contrast w real estate o Heterogeneity every unit is different o Transactions of similar properties occur infrequently o Immobility can t separate parcel from locational aspects As a result RE markets are illiquid highly segmented and informationally inefficient Need fee appraisers to estimate value Who uses real estate appraisals Mortgage lenders buyers and sellers corporate acquisitions mergers or dissolutions courts divorces eminent domain cases bankruptcy o State Appraiser Certification Registered Trainee Appraiser 100 classroom hrs Certified Residential Appraiser BA degree 200 classroom hrs 2500 experience hrs residential national exam Certified General Appraiser BA degree 300 classroom hrs 3000 experience hrs over 50 non residential general national exam o Uniform Standards of Professional Appraisal Practice USPAP quality control