This article was originally published in the 2019 winter issue of Invest In Style Magazine.

By: Natalka Falcomer, VP Corporate Development

 

Data about property prices are now being released by the Toronto Real Estate Board (TREB) to TREB’s members. Hurrah! This release is long overdue as the “freedom of information” movement has been happening across all industries, thanks to the internet. Accordingly, we encourage national and international home buyers and sellers to reference chestnutpark.com, to gain insights into the Ontario market. Such encouragement, however, comes with a caveat: “sold data” is but one piece of a very complicated puzzle and relying solely upon sold prices to understand the market will invariably lead you astray.

 

The Metrics Used to Measure the Real Estate Market’s Health

No one metric can be used to accurately paint the picture of the entire real estate market. For example, the overall average sale price of Toronto homes may be less than the previous year’s average sale price because the previous year saw the sale of a few exceptionally expensive properties which skewed that year’s average. If you didn’t know this, you might assume that prices are falling along with the market. You might also gloss over the fact that certain pockets are reacting to their own micro-climates. For example, three specific streets in the east end of Toronto saw a decrease in prices, despite the overall price of homes in the neighbourhood hitting an alltime high. The reason for this anomalistic “micro decline” is that a safe injection site stigmatized the street, affecting some homeowners’ decisions to move.

 

 

The sale price of a property in comparison to previous sale prices is also not necessarily indicative of the overall market. Perhaps a particular property was sold between family members at a favourable price or a quick sale was needed due to debt, death or divorce. The low price of a particular property or house, therefore, does not necessarily indicate the health of the entire market and does not mean that your home, just a few doors down, would sell for a similarly low price. Another metric often used to determine whether a market is accelerating or deflating is the comparison between the list and sale price of a property. If the property sold for a lot less than the list price, one might speculate that the reason for the differential is that demand is low and, therefore, the market is weak. This gauge, however, is misleading. For example, if a home is listed for $1,000,000 and sells for $900,000, then real estate pundits would sound the alarm and use this stat to show that the market is declining by 10%. Would your view of the market change if you knew that the home only sat on the market for one day? Or that the house was listed at a significantly above-market price by an agent who didn’t understand the nuances of that particular market? It could in fact be the case that $900,000 is a record price for that neighbourhood.

 

A third market evaluation tool is the number of days a property sits on the market (“DOM”). The theory is that the longer a property sits on market, the slower and less healthy the market. While theoretically helpful, TREB’s DOM statistic does not accurately track the total number of days on the market for any given property.

 

Before It Sells

It’s common practice for agents to terminate and re-list the same property multiple times to get the property at the top of a buyer’s listing feed and to ensure that the property isn’t perceived as stale. This distorts TREB data because every time a property is re-listed, the previous days on market, and the original list price, disappear. In other words, an agent can list a property for 30 days and decide to terminate and re-list the property at a much lower price. Once re-listed, the property appears as a new listing and on the market starting at “0” days. By re-listing, the property sheds its stigma of appearing stale, allows the seller to reduce the price without seeming desperate, and can incite more buyer interest. This means, regardless of whether or not TREB shares its data, we still don’t know whether a list price was actually achieved or how long it really took to sell a property. This practice distorts the apparent appetite of buyers and, therefore, masks the true health of the market.

 

Making Sense Of The Information

 

Sales data are important – as long as these data are understood as only one piece (and, possibly, a misleading one) of a complex real estate puzzle. The best defence against interpreting data incorrectly, or oversimplifying the realities of a market, is to speak with real estate agents who work in the specific neighbourhood where you want to buy or sell. Local experts have their own independently-collected data and monitor properties in a much more robust manner; they watch properties and how many times they’re re-listed. These agents are aware of new developments that may affect property value and they often know the reason behind a sale that either inflated or deflated the price. To access the information that will help you make a better-informed decision, contact an agent who understands the dangers of oversimplification and the benefits of specific, credible data.

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