The Housing Chronicles Blog: In Search of a Great Market Study

Thursday, March 7, 2013

In Search of a Great Market Study

With the positive news regarding the housing market continuing to pile up over the past year, we’re also starting to see a rebound in the demand for more traditional market studies for new or re-energized projects by builders, developers and investors.

Yet because almost anyone can call themselves a new home market research consultant – requiring little more than business cards, a decent Web site and attending various networking events – like with any other product or service, the term ‘buyer beware’ is certainly relevant.  Following is a list of three questions I made sure to ask when working for a home builder and in the position to hire such firms:

1. Why you and not the other companies?  This is where you make sure that your “gibberish meter” (polite term) is set to the highest level.  Talking points including company size, aggregate years of experience in the triple digits, public speaking engagements and press citations simply aren’t relevant if they can’t convince you, your company executives and your lenders that a proposed project is ready for prime time.

Once you determine whether the answer given to this question is convincing, then you can drill down to the others.  What you want to hear about is experience walking projects to analyze architecture, merchandising, marketing and sales while also using appropriate data sources to put your findings in context with the overall market and general economic conditions including job growth, commuting patterns and demographics.  Ideally, your consultant should walk these competitive projects with you in tow.

If there’s a meeting to present the findings – a formality which has largely disappeared in tandem with improving communication technologies – that’s your chance to ask specific questions and figure out who actually did the work.  Which are the most important comps, and why?  Who’s selling the best in my submarket and why?  Are there any proposed projects which should concern me, and why?  How does the existing home market compare, and how will I be able to justify the premium for my new homes?  If your consulting contact can’t address those questions without leafing through the report, then they sent the wrong person.  This is not a good sign.

2. Where do you get your data, and what is your methodology?  Since nearly anyone can go visit new home projects or rental leasing offices and conduct their own primary research, what consultants are really selling is the value of their clients’ time.  Even in those cases when a company has its own proprietary database – which is a great time-saver and should mean lower prices to the client versus the competition --  the consultant should really view it only as a starting place from which to update or confirm this data with field visits and interviews.

Since agents can be treasure troves of qualitative data on their market and customers, knowing how to chat them up without wasting their time can mean the difference between a good study and a great one.  And, during those times when an agent is either unavailable or uncooperative, knowing how to convincingly ‘play buyer’ to get the data you need is essential.

Moreover, walking the competition is the best part of the job – no matter the size of the home or the sales price, I ask the same questions:  Am I impressed?  Do the rooms flow well?  How does the inside relate to outdoor living spaces, if any?  Is it decorated to scale?  Does it seem solidly built?  How does this compare to other homes I’ve seen?

3. Who will actually be doing the work?  This is a key question, because with the larger firms it’s unlikely that the principals with years of experience will be actually doing the heavy lifting.  These places are like factories, and must constantly churn out work product to justify their overhead, which may or may not coincide with your own best interests. 

More likely, they’ll promise to supervise analysts whom they’ve hired directly out of college or with a few years of experience in another field.   While it’s certainly understandable that everyone has to start somewhere to gain experience, do you really want your pet project -- or your future career -- in the hands of a relative neophyte?

Moreover, when business is ramping up with multiple deadlines at once, it’s more likely that these studies get at most a cursory glance from those with the most experience, and this is why so many studies get re-done by their competition.

Don’t let that happen to you.

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