Garbage In, Garbage Out: My Concerns with Using Listing Price as a Market Metric

Posted On: September 29, 2010
By: ffdadmin

Coldwell Banker recently released a study of the most expensive and least expensive housing markets in the United States, using the listing price of a 4 bedroom, 2 bathroom property as their metric, which I think is an absolutely horrid and pointless metric to use when conducting a study of housing prices.

It’s been blogged about just about everywhere, and well, I’m blogging about it here so from a public relations point of view, they are certainly getting their mileage out of it…

And while I think just about every study will show that San Francisco is one of the most expensive places to live (we like to think of it as the culture tax), I really disagree with the use of listing price as a metric. Listing price is a statement of what the seller would like you to pay for his or her house. However, in every market the buyer ultimately sets the price of the house. Yes, their is negotiation, but if the buyer doesn’t ultimately agree or come to a compromise with the seller, then the house will never sell. So who cares what it lists for?

You could argue that home prices generally sell within some percentage of their list price (it’s usually within a few points in San Francisco, on average, in my experience), so it is a “close enough” metric to work with… but really, to me it comes across as lazy and sloppy and something you’d use if you wanted some cheap PR and didn’t want to spend a lot of money getting the data.

And as long as I’m ranting, I think the use of a 4 bedroom, 2 bath home as the metric is a bit silly. A 4/2 home in San Francisco is much larger than our normal home, so it distorts a bit what the average cost of a home is. And yes, you can argue that for comparison’s sake, it presents a consistent property type to compare in different markets. But I think that you easily run the risk of having a very small sample size in some markets that doesn’t accurately represent the true cost of housing in that market. And since it isn’t titled “where are the most expensive 4 bedroom, 2 bath homes” I say it’s misleading.

All of which I guess is my way of saying that I’m thrilled to be working for a local San Francisco real estate firm, even if we don’t pull cheap PR stunts like using a bad market metric – listing price – to make broad conclusions about affordability.