The Town Broker

Real Estate Statistics: What You Need To Understand. (Part 3)

Real estate statistics can be confusing, and real estate is FULL of statistics! In Part 1 of this 3-part series, I looked at market absorption, how it describes the “dynamics” of the real estate market, and how you can use it to your advantage! In Part 2, I reviewed how the days on market (DOM)  tells how much the market values a listing. In this post, I’ll cover the final of the big 3 statistics: Sale Price/ Original List Price Ratio.

Sale Price/ Original List Price Ratio. 

This number simply tells how close to the original asking price the seller got for their home. It is NOT the number most commonly reported by the major real estate websites, or even by agents and brokers when they tout their marketing success. As a consumer, you’re more likely to see the List Price/ Sale Price Ratio…which is usually calculated off the final list price. And across most markets, this ratio usually looks pretty good, and pretty consistent…somewhere above 96%, sale/list price.

Now stop and think about it for a moment.

If you only calculate the ratio using the final list price before it attracted an acceptable offer, you’ll always have stronger numbers!  When a listing sells, it’s the market’s way of confirming that the price was right (or at least close to right). Duh!!!  But it doesn’t necessarily tell you that the seller got what they wanted when they put the home on the market.

When you dig deeper into the numbers, you’ll usually see that there is a striking difference between the List Price/Sale Price ratio and the Original Lisp Price/Sale Price ratio. In many instances, the difference can be as high as 5- 10%!  

Does it really matter you ask?

You bet it does! Because what’s hidden behind the numbers is the fact that those listings which needed a price correction before they recieved an acceptable offer, linger on the market longer than their correctly priced peers. And what we learned in the last post is that when this happens, the market devalues them, and the seller always accepts less!

Equity is best preserved when the original list price is close enough to the final sale price so that a price correction is never needed!

The best brokers and agents in the market know how close to the target selling price a new listing needs to get in order to maximize equity preservation for their client. But there are those out there who don’t know, or won’t tell you. Why? Some agents just arent’ very good. (Wait…did I say that?) And others believe that if they can get you excited by a BIG NUMBER you’ll be more willing to list with them. They’ll try to get you to correct your price in the future. But for now, they have their sign in your yard and your listing in their inventory. This is known as buying a listing within the industry, and for the reasons described above, it never works out well for the seller.

In a  future post, I’ll tell you just where the “sweet spot” is when pricing a listing (the right amount above the target sale price that gives a seller negotiating room, while still preserving their equity). Stay tuned!

Tags: List to sale ratio, LP/SP, market report, real estate statistics

This entry was posted on Wednesday, January 27th, 2010 at 7:12 am and is filed under Buyers, Real Estate 101, Real Estate Industry News, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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