We are just beginning the busiest time of the real estate season in Calgary.
Potential homebuyers are on the prowl looking for their dream property.
Sellers are hoping to seal the deal on their home listing and get top price.
While it is an exciting and at the same time stressful experience for both parties, it’s also a confusing one as consumers in the real estate world navigate through some of the terminology constantly being bantered about.
A better understanding of some key real estate industry phrases can help the seller and the buyer comprehend what’s taking place and how it impacts them.
And the key thing everyone wants to know is the price of a home.
But the real estate industry has three different ways of measuring the price in the market. The average MLS sale price and the median price are measures that most people understand.
The benchmark price? Well that’s totally a different story that has consumers scratching their heads. And no wonder.
There is a huge discrepancy in the different ways that homes are priced. According to the Calgary Real Estate Board’s stats, year-to-date until the end of March, the average MLS sale price in the city was $486,975. That’s a simple calculation of taking the total dollar volume of sales and dividing it by the number of sales.
The median price for the same period was $427,000. It’s less familiar to people than the average price but it’s a calculation that looks at the midpoint price of homes sold in the market. Half of the homes sold are below this price and half are above it.
Now this is where it gets tricky and confusing. The benchmark price. In Calgary for the first three months of the year, it was $434,067.
It’s a new measure that the real estate industry developed in the last few years to better reflect what prices are actually doing in a particular market.
Ann-Marie Lurie, chief economist with the Calgary Real Estate Board, says the best way to rephrase it is to consider the price of the average home in a market.
“Instead of looking at the average price of all homes that are sold, it’s really the price of that average or typical home,” she explains. “And I find that a lot of people don’t necessarily know what a typical home is. It’s the average home in the city. It’s much more applicable when you start looking at it by your communities. What features make up this average home? Most homes have so much square footage and that sort of thing. Often when we talk about it, the best way to explain it is in relationship to what is the average home.”
And the average home can be defined in all the different real estate categories – single-family dwellings, semi-detached home and condo apartments.
For example, a typical detached home in Calgary is defined as having three bedrooms, two full bathrooms, a half bathroom, built in 1992, about 1,300 square feet above grade and it has a two-car attached garage.
“So when you’re thinking about a benchmark price you’re thinking about it in terms of homes with these standard sort of features and that is what makes up the average home in the city,” says Lurie.
“It’s looking at all of that stuff and saying okay most homes in the city have this and this is really what that price is meant to reflect.”
Lurie says the benchmark price is really a better reflection of what’s happening in the market.
“Because when you’re looking at changes year-over-year, you’re looking at the same type of home. The average home doesn’t change so much in a year. It’s the same type of home. So you’re looking to see how those prices have changed. That’s why it’s a better measure when you’re talking about year-over-year changes or how prices are trending because you’re looking at the same type of home,” says Lurie.
“You’re taking out that impact of more homes in this price range sold this month so average prices increased. That is part of the problem with an average price. If you have just more activity in the higher end of the market, it could show that your average prices are increasing but it doesn’t really mean anything. That’s what the benchmark price gets away from because you’re looking at the general type of home with varied features and then you’re comparing that year-over-year. It’s just a better way to look at true prices.”
The benchmark price gives a true measure of how prices are trending – and whether you’re a potential buyer or a seller, that’s the most important thing you want to know in the real estate process.