Lies, Damn Lies, and Statistics!!

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Education & Training

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.

Humorous graph by xkcdAs 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!

 

Posted by

                                                                                                                                                                       

Ken Gramley
Fonville Morisey Realty
1149 Kildaire Farm Rd
Cary, NC 27511

(919) 414-1961
www.KenGramley.com
ken@kengramley.com

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Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Tony Marriott 12/20/2010 09:46 AM
  2. Gabe Sanders 12/27/2010 08:10 AM
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Topic:
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Rainmaker
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Tony Marriott
Associate Broker, REALTOR
Haven Express @ Keller Williams Arizona Realty

This is a great blog post about truth in numbers.  I'm amazed by the number of short sale agents who have closed hundreds of short sales with a 95% closing ratio whose MLS track record is far, far from it.  If you're going to use numbers, do so honestly and accurately.

December 20, 2010 09:46 AM
Rainer
35,678
Ken Gramley

Tony and Suzanne, I agree completely!  Thanks for stopping by!

December 20, 2010 03:07 PM
Rainmaker
507,624
Wayne Johnson
San Antonio REALTOR, San Antonio Homes For Sale
Coldwell Banker D'Ann Harper REALTORS®

Ken-I like the quantitative approach in building a case for a course of action. It helps with most clients, but some just believe what they believe to be true and don't want to be confused with facts.

December 23, 2010 09:24 PM
Rainer
35,678
Ken Gramley

Wayne, I've also found that some people just aren't interested in the details.  Just give them the results and they are happy.  Thanks for coming by!

December 25, 2010 06:40 PM
Rainmaker
1,682,386
Gabe Sanders
Stuart Florida Real Estate
Martin County Residential Homes, Condos and Land Sales

Ken, I post statistics from my board regularly, but they need interpretation.  Like you say, they can easily be misinterpreted.

December 27, 2010 08:08 AM
Anonymous
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Rainer
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Ken Gramley

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