A marketability study requires an appraiser to investigate how a particular property can be sold or leased under current or anticipated market conditions. Included in this marketability study is a market analysis which provides a broad picture of the demand and supply conditions affecting a particular property type such as industrial, retail or office properties. In a market study, the appraiser focuses on the overall market, not a particular or specific property.
A marketability study is based on the analysis of four factors which affect a particular property – utility, scarcity, desire and effective purchasing power. Utility and scarcity are supply-side factors, while desire and effective purchasing power are demand-side factors.
The utility of a property is its usefulness in the market. For vacant land, this can involve a study of its locational attributes and linkages to other complimentary properties. Scarcity is the availability or lack of availability of a particular property type. Vacancy rates are a measuring stick of current scarcity. Desire is the wish of individuals to own or rent a particular type of property. Effective purchasing power is the ability of consumers to pay for the property, either for purchase or rent.
A marketability study should address such issues as…
- Who will the end uses be?
- What is the demand for the proposed property that is to be marketed?
- What is the supply of competitive properties?
- What is the estimated absorption rate for the proposed property?
- Are there alternative uses for the property that would provide a higher return for the same or less risk?