Perhaps you live in an average house on an average street in an average neighbourhood - then again, perhaps not. If you are caught up in the stress of buying or selling a home, it is tempting to become fixated on fluctuations in average prices as a guide to whether the value of your home has risen or fallen since you purchased it.
"Average prices tell the story about a broader trend, for activity and not just price," says Gregory Klump, chief economist at the Canadian Real Estate Association. "If you're looking at an average price for an entire area it can be skewed upward or downward by a handful of transactions that are at the high end or ... [by] a lack of [sales] at the high end."
The average price does not in fact represent the price of an average property - if there were such a thing.
"People seem to be so hung up on average sale price. Part of the problem is that the average is only an average of what is sold. It's not an average value necessarily for an area," says Laurin Jeffrey, an agent with Century 21 Regal Realty. "If houses range from $300,000 to $500,000 in a given area and only the $300,000 houses sell in a given period, that doesn't necessarily mean that the area is worth $300,000."
Nor will the average give you a price for a specific home.
"Those price trends don't talk to any one home in particular. It's useful for establishing bigger picture trends along with what's happening with price but doesn't speak to the value of any particular home," says Mr. Klump.
In order to try to work out the market value of your own home or that of a property you would like to purchase, realtors suggest that rather than focusing on a countrywide or even city-wide average price, you go very local.
"If you're looking for a typical price, you go into an area or a community that you want to look at and you look around and you will find a home that is pretty typical of the area ... you can use that as the guide," says Don Lawby, chief executive of Century 21 Canada. "What were those homes worth a year ago ... what is being asked for them today? What is the most recent sales activity? And what do they sell for? That's real typical."
The level of market activity, not just prices, may vary greatly between and even within a neighbourhood.
"Real estate is entirely local. You can have one area of the city that's always going to be in higher demand than another area," says Mr. Klump. "For one area of the city where the price tag might be falling, it might be holding very steady and may be even increasing in another area. You really have to talk to somebody who is involved in real estate where you are looking at buying and [with] the property itself."
The real estate professionals encourage potential buyers and sellers to steer clear of the average prices and look around at the immediate neighbourhood.
"You have to look at ... what comparable houses have sold and what they have sold for," says Mr. Jeffrey. "If you pull the numbers for all the similar properties in the area, then that average is going to help" because that's indicative of only those properties.
"There is no Toronto market; there's a Scarborough market and there's a sub-market in Scarborough. There's a Markham market and there's a sub-market in Markham," says Mr. Lawby. "You need expertise and local expertise where you are going to buy. And you also need to understand what's going to happen in the future. What are the plans for the area? All of those things." Doing the homework and getting the right agent is key because, "This is, for most people, the largest single investment that they make in their life."
SOURCE: THE NATIONAL POST