Earlier this week I wrote a post about a new build home under construction at 37 Canerouth Drive in the west end of Toronto. As part of that post, I asked people what they thought the home would be valued at when it was completed. There were just under 10 responses (many thanks!) and I thought it was really fascinating to see the ranges.

A lot of you responded in the comment section of the post, but a bunch of the other estimates came in via Facebook, Twitter, and email. It isn’t a huge data set, but I’ve nonetheless consolidated the ones I could remember I received:

$2,375,000
$2,750,000
$1,800,000
$3,000,000
$8,500,000
$2,600,000
$3,500,000
$1,750,000

If you average these estimates, you come to a value of $3.3M. However, the clear outlier is the $8.5M. So let’s take that one out and see how the number changes. If you do that, you then get an average estimate of $2.5M. A pretty big swing.

Now, I don’t know offhand how accurate that number really is, but I’m fascinated by this idea of “the crowd” determining value. Particularly for markets such as housing where supply can be completely heterogeneous and there isn’t a lot of transaction volume to refer back to (compared to other types of markets).

Because my strong belief is that under the right circumstances and with enough data points, this number could end up being hugely accurate. And, it could also be more forward looking since it’s capturing current market sentiment as opposed to being based on historical transaction prices.

If you have any thoughts on this, I’d love to hear from you :)

I was at a good friend’s wedding last night (congratulations again to Adrien + Rachel!), and one of the topics that came up at our table was whether it is better to own or rent your home. Now, in North America, conventional wisdom would suggest – almost mandate – that you have to own your place. If you’re still a renter, well then you’re “throwing away your money” my friend.

But are you really? 

A big part of the value of owning your home is that it’s forced savings. Every month when you make those principal and interest payments, you’re paying down your mortgage and socking away money for the future. And this can be a great thing for a lot of people, particularly if you’re not disciplined enough to save otherwise.

But when you own a home, you’re also spending time and money on maintaining that home, and you’re also tying up capital that could be used elsewhere. So consider this: what if, instead of putting your savings towards a downpayment, you simply continued to rent and created an investment portfolio that you then contributed to on a regular basis just as you would a home?

Depending on your assumptions, renting could turn out to put you further ahead financially. Here’s an example of that scenario from the Globe and Mail.

Similarly, I remember being told in business school that companies that own their own real estate tend to under perform those that do not. And the rationale is that owning lots of real estate ties up capital that could otherwise be reinvested in the core business. In other words, if your core business is making widgets, then invest your money in making better widgets, not in real estate.

But this is not to say that everybody should rent. Obviously I’m a big believer in real estate. And for a lot of people, owning may make sense. This post was really just to say that the owning vs. renting decision may not be as black and white as you might think.

Image: Flickr

The responses are still coming in from yesterday’s real estate marketplace survey, but I wanted to thank everyone who took the time to complete it. I really appreciate it. I was reviewing the responses this morning and I thought there were a couple of interesting takeaways.

First, most people who own a home have at one point or another thought about selling that home. And even the people who haven’t thought about it, said they would be willing to sell under the right circumstances. That is, they would sell for the right price, for a better place, and so on. At the time of writing this, nobody said they would never ever sell.

I think this is interesting because, even though the real estate market is a highly illiquid market, my hunch is that it could be made a lot more liquid with the right frameworks in place and if the barriers to selling could be reduced.

And sure enough, many of the folks who said they have thought about selling (but haven’t yet), said it’s partially because it’s too expensive and too much work to sell. But in addition to these barriers, two other points emerged that I hadn’t given a lot of thought to before – but make total sense. 

Homeowners also said that they haven’t sold because they’re too emotionally attached to their home and because they’re afraid they won’t be able to find another place to move into. 

Because of how illiquid the real estate market is and because home transactions are typically asymmetric (that is, buying and selling are independent actions), there appears to be a real concern that you could sell your home and never find anything better.

And since a home is such an emotion filled asset (as opposed to, say, a stock), people are naturally afraid of making the wrong choice. But then that begs the question: Are we, as real estate consumers, being left with suboptimal outcomes because we’re simply too afraid of the making the wrong choice?