Lies, Damn Lies, and Statistics!!

Did you know that 47.2% of all statistics are made up on the spot?  So with that in mind, proceed with caution, you have been duly warned!

Constantine Isslamow wrote a post titled Average Prices, not a true measurement which made me think about average prices and some of the other interesting statistics that I have learned aren't always what they seem to be.

As a former engineer I'm pretty big on statistics, and I use them frequently.  Look at my website, or talk to my clients and you'll quickly learn that I like numbers.  However, one thing I've found is that you have to interpret the statistics you see or read about very carefully.  As the cartoon implies, numbers can often be manipulated to say whatever the speaker/author intends.  With that in mind, here's some things to keep in mind when someone throws out a number.

Average Sale Price

The difficulty with this number is, on a small scale like comparing homes in a subdivision, that it doesn't take into account the size of the homes, and larger homes sell for more than smaller homes, all else being equal.  There's another problem when applying this statistic to compare, for example, last years average sales price compared to this years average price.  If, for example, there were a number of $1M+ homes that sold last year, and none sold this year, the average of all homes is likely to go down.  However, the value of lower priced or mid range homes may be stable, or even increasing.  Don't assume that because the average in your city went from $250,000 to $245,000 that your home lost $5,000 in value. It may have, but it just might have gained value.

Average SP per Sq Ft

In order to avoid some of the above problems I like to use Average Sale Price per Square Foot.  This is a pretty good mechanism to compare properties within a subdivision, but it isn't foolproof either.  The value of a finished basements or attic is not as great as the value of first and second floor finished space.  So, a 2800 square foot home where the finished space is on two levels is worth more than a 2800 square foot home with a finished attic.  If they are priced at the same SP/Sq Ft then the second is overpriced.  If the second home is priced right, taking into account the somewhat lesser value of the finished attic, then it will have a lower Avg SP/Sq Ft, making it look like more of a deal than it really is.

Average List Price

One of the interesting things about the Triangle area of North Carolina is that houses are generally priced right, and we have a average SP/LP ratio of 97%.  You read that right.  For the approximately 2000 closings we have had in Cary over the last year, we have an average SP/LP ratio of 97%.  This means that it is IMPERATIVE for sellers to price their house right, or it simply won't sell.  Buyers need to realize that the sellers will get very close to their asking price, assuming it isn't overpriced.  This isn't an area where offers that are 20% below list are going to get much traction.

So, if you are interested in what homes are selling for in your neighborhood, or in a neighborhood you are interested in buying in, give me a call and we can discuss what the market is REALLY saying!