What is Benchmark Pricing?

When reading anything to do with Edmonton Real Estate Market, I come across the same term, repeatedly, “Averages are misleading, benchmark prices are sophisticated and accurate.” Ok, well then, what do you mean by Benchmark Price? What does this tell me about the value of my home? What are prices doing in the real estate market?
A little back story here. Realtors have access to mountains and mountains of sales data. Who sold what and when for how much, dating back to the 1980s. The trick is how to make this data useful. The Canadian Real Estate Association appears to have done that with the last 15 years or so of data with the MLS Home Price Index and Benchmark Pricing. Here how it works, and even better, here’s a link. Anyone can use this tool HERE. (Please note, the Realtors HPI tool has a much larger drill-down capacity than the tool you will have access to as consumers)
I recognize Benchmark Price is the price of a home given certain attributes in or over a specific time frame in a particular area. I was a little skeptical about deciding what characteristics comprise the benchmark price. The following descriptor put me at ease.

“A “Benchmark home” is one whose attributes are typical of homes traded in the area where it is located, one being generated for each supported sub-area. Benchmark property descriptions are based on median values for quantitative property attributes (e.g., above-ground living area in square feet) and the most commonly occurring value (i.e., modal value) for qualitative attributes (e.g., the basement is not finished).”

The system for calculating benchmark prices has two neat components to it. One, the system lets you look up what assumptions are built into the model (which is supposed to be built on historically common occurring features). Two, for specific properties, the system is built so users can include the most common attributes in a home to calculate a benchmark price.
For instance, if I am looking for a Benchmark Price for a single-story home (yes, that’s a bungalow) in North Glenora. My benchmark description, or assumptions built into the model to give me a value estimation are a home with

  • Two bedrooms upstairs
  • with a finished basement
  • one bedroom below grade
  • built-in 1953
  • with a concrete basement
    And about ten other data points and an estimated sale price of approximately $437,900.

All models are only as good as the assumptions built into them. There are over 33,000 assumptions built into this modeling system. I think there are a few reasons to be excited about this program. This system immediately eliminates outlying statics and groups data into a useful fashion. This system is inclusive of all home types and geographies in the greater Edmonton area. This system allows users to quickly compare information over a period or at a specific point time and this system automatically eliminates outlying data.
The system is limited. There is no replacement for the actual pricing knowledge gained actively buying and selling real estate. Secondly, the method the software draws data that is often incomplete and inaccurate. There are few checks and balances into what gets inputted into the MLS system and what is used in this model. For example, lot size is used as the default quantitative measure in the Benchmark model, but if you’ve ever looked at an MLS sheet, maybe a third of realtors input lot size into their listings.

Thanks for taking the time to read. If you have any questions or comments, please reach out.

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