What is Meant by “Benchmark Price” in Real Estate?
Benchmark price is defined as the price of a typical home in a given area.
For example, the city-wide benchmark price for condominiums in November of 2016 was $271,300. In the same month, the benchmark price for detached properties was $498,300
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When benchmark prices are calculated by an organization like the Calgary Real Estate Board (CREB®), it’s done in two steps.
Step 1 – Estimation of benchmark price models:
All sales records for a specific type of property in a specific location (detached homes in Altadore, for example) are collected and a formula is produced that estimates how a home’s features contribute towards its benchmark price.
Step 2 – Calculation of the benchmark price:
Once values are given to the each of these features, they are then put into the formula produced in the first step to determine the benchmark price.
A typical home has attributes that are common within a given neighbourhood. Some indicators that identify the average home include:
- Lot size
- Square footage (excluding the basement)
- Number of bedrooms
- Number of bathrooms
Typical attributes can be identified by using the sales data for a specific property type in a specific location. For example, if a northwest inner city community in Calgary has homes with mostly three bedrooms and three bathrooms, the features / attributes of a typical home for that area will have the same. For other indicators such as lot size and square footage, the median value is used.
Using the typical home to determine benchmark prices is a stable method because it tracks the changes of the “most common” home and excludes both low-end and high-end properties that may be found in a given area.
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