We all love a good anecdote. Here’s one I particularly liked when I heard it.
Bill Murray was at a bar in Austin, Texas, one night with RZA and GZA of the Wu Tang Clan and jumped behind the bar to serve drinks to the crowd. Regardless of what they asked for, he gave them tequila.
As you can imagine, the patrons were pretty surprised to see a famous actor hanging out with famous rappers and serving drinks. The fact that he asked what they wanted and then just gave them a shot of tequila strikes me as pretty damn funny.
If you go to that bar expecting the same thing to happen, you will likely be disappointed. You probably won’t have a bad time, but the evening will likely not live up to the level you expected based on the Bill Murray anecdote.
I think that anecdote works pretty well because it is an interesting story. One definition of anecdote is “a short and amusing or interesting story about a real incident or person”. We like quick, entertaining stories that really happened.
When we hear a good anecdote, we tend to remember it. We sometimes repeat it to others. We might bring it up to prove a point. In fact, without even realizing it, anecdotes sometimes become the basis for making a decision.
This can be a problem, as another definition of anecdote is “an account regarded as unreliable or hearsay”. A good story that makes a good anecdote can become a great story that makes a great anecdote if a few facts are embellished.
If I told the Bill Murray anecdote and add in that he was dressed in his ghostbusters jumpsuit while he served drinks and that every time he served a shot of tequila, he drank one himself, well, that would make the anecdote even better wouldn’t it?
Here’s a Youtube video showing him serving drinks. Sadly, he is not wearing a ghostbusters jumpsuit or matching shots with customers.
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Even when the specific story is more or less true, it is very easy for us to take one or two anecdotes and see a pattern that may not actually exist. There are a number of fun anecdotes about Bill Murray out there. A few years ago, a fellow posted some pictures of Bill Murray joining him and his friends at a karoke bar in New York City. This group saw Bill Murray, invited him to join them and he stayed for hours, buying drinks and singing Elvis songs.
Again, a pretty good anecdote. A famous celebrity who is so down to earth and fun loving, he’ll join perfect strangers and sing karoke with them. The pattern seems to be clear. Bill Murray is accessible, always willing to hang out with strangers and will do random things without a problem.
This is certainly not the whole picture. I am sure there are times when Bill Murray does not want to be bothered, when he doesn’t feel like being bothered by strangers, when he doesn’t want to tend bar or sing karoke.
The anecdotes we hear and tell about him paint a picture that, while humourous, is not the whole story.
Understanding that anecdotes are not the most reliable source of information is important.
People regularly make personal and business decisions based on anecdotes. Even worse, the advisors paid to help them make good decisions regularly let them do it.
In real estate, you hear anecdotes all day long.
If you were to ask around for a good story about a bidding war in Toronto, you will have no shortage of people ready to tell their anecdotes about the competition, the crazy final selling price, the number of offers and so on.
The stories will be true, or more or less true. They will not in any way however represent the sum of all real estate transactions in Toronto. For every person who stands up to tell their crazy bidding war story, there are a much larger percentage of people who have less exciting stories about their home purchase. They aren’t particularly interesting or funny, so we don’t tend to tell them.
If you speak with Realtors in Toronto, one common anecdote is how many of the city’s condominiums are owned by foreign investors.
Ask a Realtor to show you some units for rent in a new or recently built condominium and while you are seeing the properties, ask them how many of the units in the building are owned by investors from out of the country.
The percentage will vary wildly depending on the Realtor’s recent experiences, but many Realtors will say that a significant percentage are owned by foreign investors from China, the middle East and other far flung locations. The exact number they state will be made up on the spot, using their intuition and experience.
If you press the Realtor for proof, they could spread out a pile of current listings for rent and point out the names of the owners. Depending on the profile of the building and where the developer or listing agents successfully marketed the units when the building was first registered, you will see a strong trend of owners with similar names, most indicating a particular ethnic background.
The Realtor will conclude that yes, this building does have a significant number of overseas investors as owners.
You can argue about whether that is truly an interesting story about a real incident, but let’s be kind and say that it qualifies as what we described as an anecdote. Anecdotally speaking, a significant number of rental condominiums in Toronto are owned by foreign investors.
The question then, is whether it is reliable to base any sort of decision on this anecdote.
If you are looking for a condo for yourself or your family to live in, is it a smart idea to avoid buying a unit in this building because you don’t want to be living amongst a large number of renters whose landlords live far away and aren’t noticing the tenants destroying the units and ruining your quality of life in the process?
If you are looking for an investment, should you view the seeming popularity of this building with foreign investors as a sign that this is the right building for you to purchase your own investment property? Will you do very well on this investment, just like the large number of savvy international investors who chose this building, in this city, in this country, presumably after careful consideration of a number of factors?
Both of these questions have underlying assumptions formed by relying on anecdotal evidence. The core assumption is that these anecdotes present a true and accurate representation of the number of foreign investors who own units in the building. An investor who makes a decision based on these anecdotes or a Realtor who advises his client without looking beyond the anecdotes are likely to regret not looking deeper.
The Canada and Mortgage Housing Corporation (CMHC) recently released a Rental Market Report that, among other things, looked at this issue of foreign investment in Canadian condominium units.
Based on an October, 2014 survey, CMHC looked to property managers to provide information on the total number of condominium apartment units owned by people whose permanent residence is outside of Canada.
Anecdotally speaking, it should be pretty high. A result of somewhere in the 10 to 25% range would not seem outrageous to most Realtors.
Statistically speaking, it was 2.4% in Toronto. This was folowed by 2.3% in Vancouver, 1.5% in Montreal and drops down considerably in other major Canadian cities.
This means in a typical condo development of 200 units in Toronto, approximately 5 of the units will be owned by foreign investors. If you are looking to live there yourself, it no longer seems like a building with significant absentee landlords and tenants running wild. If you are considering an investment unit in the building, it also no longer seems like international investors are flocking to the building or Toronto in general for our fantastic investment options.
There has been some strong pushback against the CMHC report, with Realtors and prospective purchasers arguing that those percentages can’t possibly be correct, based on their anecdotal experience.
One of the most common failings of anecdotes is that they mistakenly use a portion of the subject pool (known as a sample) as if it is representative of the total number in the subject pool (known as the population). From this approach, we make a statistical inference about the population, whereas we are actually really only considering the sample.
In the case of units owned by foreign investors, many times the sample considered is only the units being rented out. When a Realtor is showing a prospective renter the units that are available, the units that are being sold or are being lived in are not being considered. The full population would include both units being rented out as well as units for sale and those not currently on the market, either rented out or owner occupied.
In addition, it is reasonable to assume that foreign investors are more likely to use a Realtor to rent out their unit than are unit owners who live in Canada. Such local owners can use their own circle of friends and acquaintances to try to find a prospective tenant. They can also make use of free listing options like Craigslist or Kijiji and handle some showings themselves. Foreign investors generally rely on professionals in the area to do this for them as they are too distant to easily perform such tasks. If we had two individuals who were looking to rent an apartment in Toronto, and had one use a Realtor in their search and the other rely on friends, colleagues and free listings, I believe they would have very different anecdotes to tell about their search, particularly when it comes to who owns the units for rent.
When it comes to making a decision with real financial consequences, it pays to be very careful on how much weight we give to anecdotes. They often only tell part of the story. By gathering more information about the situation and questioning the underlying assumptions in the anecdotal evidence, we can make better decisions and achieve superior results.
If you need help with real estate, please don’t hesitate to get in touch. I’d love to be responsible for what comes next.
Now, who wants to go that bar and see if Bill Murray shows up again?