Market Evaluation

People are wondering if the worst of the crash of the Fall of 2008 is over. Consequently they are wondering how the value of their largest asset, their home, is holding up.

Media reports of real estate statistics can leave one righfully confused. The problem is that these statistics are usually based on averages of city, provincial and national markets. Such (averaging) data can be misleading when applied to the value of properties in specific neighbourhoods.

Consequenty homeowners and potential home purchasers should not rely on this data when valuing either their own properties, or properties that they wish to purchase. Instead, sellers and buyers should respectively monitor selling prices of similar homes in their neighbourhood or the neighbourhood in which they wish to live.

The Averaging Dilema

Suppose that in Year 1 five homes in a neighbourhood sold for $200,000, $220,000, $260,000, $290,000 and $500,000 (the average is $294,000), but in Year 2 additional sales comparable to the first four homes only sold (average $242,000).

Statistically, this would imply (due to the skewing of the $500,000 property) that the average price of homes sold in this neighbourhood in Year 2 decreased $52,000 or 18% from Year 1, even though all the houses sold in Year 2 actually sold for the same amount as the first four properties in Year 1.

 

Existing homeowners in the area thinking of selling, or potential purchasers in the area would be misled if the didn't analyze tha data, which implies that the value of the properties had fallen dramatically over the year.

Be sure then, when valuing homes/properties for either reselling or purchasing, of not relying on city, provincial, or national statistics, but rather of the more accurate process of gathering local neighbourhood data and carefully analyzing it, including all factors that might influence the value, putting any skewing factors into perspective.

this is a paraphrase of an article written by Don Lawby, President and CEO of Century 21 Canada.

 

Drew Douglas

Drew Douglas

Broker
CENTURY 21 Millennium Inc., Brokerage*
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