What is “Benchmark Price” in Real Estate? Ask a REALTOR®
- January 4, 2025
- By Cody Battershill
What You Need to Know About the Term Benchmark Price in Real Estate
A benchmark price is the predicted sale price for a typical home in a specific municipality or community, determined by the Housing Price Index (HPI). This index takes into account common characteristics of properties in an area such as size, location, features, and construction date. By focusing on these common attributes, the benchmark price for a home provides a reliable estimate of its market value in that neighbourhood.
As a result, this pricing method is a valuable tool for buyers and sellers to evaluate real estate prices and compare them across different areas. Whether looking at condos, townhomes, or detached homes, understanding the benchmark price for a location or segment can give you a clearer picture of what to expect in the localized market.
Understanding Benchmark Prices
Let’s say you want to buy a single-family home in a specific community. Upon browsing the market, you learn the benchmark price for this segment in this neighbourhood is $850,000. However, another neighbourhood may have a different HPI for single-family homes and, therefore, a higher benchmark price of $900,000.
It's all relative; this other neighbourhood with a higher price point might have a better location, more luxurious homes, or newer construction properties --- just three of many characteristics that could influence the HPI.
Another example would be benchmark prices for downtown condominiums in a major metropolitan city, which would likely be much higher than those for apartments located in the suburbs.
Where Can I Find Benchmark Prices?
Municipal and regional real estate boards frequently publish benchmark price updates for their respective residential markets.
The Calgary Real Estate Board (CREB®), for example, reports on benchmark prices for each market segment at large (condos, townhomes, etc.) in a monthly media release. While this is handy to get a general feeling of what’s happening in Calgary’s residential market, it may not always reflect that particular segment for specific communities.
Let’s say, for example, that the benchmark for condos across the city rose last month. However, in certain communities, it may have fallen due to a combination of, let’s say, low sales activity and heightened inventories. That's why it is so critical to investigate pricing for the exact segment in the exact location when determining just how much a property is worth.
Remember that any major city you look at - Calgary, Toronto, or Vancouver - is home to a highly dynamic residential market, meaning benchmark prices can vary drastically from community to community. Hence, it is essential to consult with an experienced Realtor® to ensure you’re fully aware of the differences between specific areas relative to the overall market and how those could affect your transaction.
How are Benchmark Prices Calculated?
When benchmark prices are calculated by an organization like the Calgary Real Estate Board (CREB®) or your real estate agent, for example, it is typically done in two steps.
The Canadian Real Estate Association (CREA) provides authoritative resources and standards for calculating benchmark prices, such as the MLS® Home Price Index (HPI). Realtors® have special access to the MLS HPI tools provided by CREA.
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 the individual features of a home contribute to its market value.
Step #2 – Calculation of the Benchmark Price:
Once values are given to each of the features of a home, they are then integrated into the formula in the first step to determine the benchmark price.
What are ‘Typical' Features Used in the Benchmark Formula?
Some indicators that identify the 'typical features' of an average home include (but are not limited to):
- Lot size
- Square footage (excluding the basement)
- Number of bedrooms
- Number of bathrooms
- Completion date
Typical attributes can be identified using sales data for a specific property type in a particular location. For example, if a certain northwest inner city community in Calgary has homes with primarily three bedrooms and three bathrooms, the features/attributes of the typical home in that area will be the same.
What If My Home Isn't a 'Typical' Property?
Using the ‘typical’ home to determine a standardized price is widely accepted because it tracks the changes in the “most common” property and excludes low-end and high-end properties considered anomalies.
However, if your home isn't the 'typical' property for your neighbourhood, and you want to know its true value, contact an experienced Realtor® who can perform an in-depth Competitive Market Analysis.
Knowing the Difference Between Average, Benchmark, and Median Prices
It’s important not to confuse ‘benchmark price’ with other real estate terms. Below, we quickly go over the differences between some similar terms that are also often used when discussing the price of a particular property.
Average Price
The average price is calculated by taking the total sales value and dividing it by the number of sales for a given area.
The only problem with the average is that homes sold during a certain time frame may all be lower-end or higher-end, and therefore, the average price may not properly reflect the “benchmark” of a given community.
Additionally, average prices can be misleading as they do not account for variations in property sales, which can significantly impact the reported figures.
Median Price
The median price is calculated by taking the total number of home sales in a given area over a specified timeframe and listing the sales prices from low to high. The value found directly in the middle of the lowest and highest sale prices is called the “median.”
This isn’t a great figure to rely on when determining the value of your home because, once again, there may have been more low-end homes or high-end homes sold during the specified time frame.
If you’re unsure about certain real estate terms and want to know how they apply to your current/future transaction, ask your Realtor® and they should be happy to help!
More Real Estate Terms
Questions about Calgary Real Estate?
As a top-producing team of Realtors® with RE/MAX House of Real Estate, we would love to answer any questions you have about the local residential market. Contact us anytime at 403-519-0495 --- we are looking forwards to discussing your real estate goals!