Rebecca, Home Buyer in Wellesley, MA

How can listing price to sales price ratios be useful considering the listing price has often been lowered more than once?

Asked by Rebecca, Wellesley, MA Tue Feb 23, 2010

Saying homes in a town sell within 95%, for example, of the asking price seems meaningless if the asking price kept dropping and the original asking price was much higher.

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Patrick Thies SFR, CNC’s answer
The ratio is used more as a ballpark guide with both the sellers and the buyers.

Buyers can use the stats to decide where to start their offer. If on average houses are selling at 95% of list price, then buyers have an idea of where the final sale price should be.

Sellers can use the stats to see where their house may sell at and also to see where they should list the house.

When the price of a house keeps being lowered, then sellers can see that it would be best to list closer to the last list price and avoid over pricing the house.

What really is important is what similar houses in the area are actually selling for and use that as a guide.
0 votes Thank Flag Link Tue Feb 23, 2010
You're absolutely right. I keep making that point over and over again in answers I post.

I see plenty of cases in which a property starts off at $500,000, gets reduced to $470,000, gets reduced again to $450,000, then sells for $427,500--a 5% reduction from $450,000. What goes unnoticed by many is that's really about a 15% price reduction from the original listing price.

A further complication is that the sales price doesn't reflect the next to seller (even ignoring the commission). That is: Often the buyer will ask for a "seller subsidy" to help pay closing costs, or perhaps for remodeling. Whatever, it can run up to 3% in many cases. So, using the example above, after the seller subsidy, the house really sold for $414,675 . . . or about an 18% reduction from the original listing price.

Using a figure like "95% of listing price" is both dangerous and meaningless for another reason. It's based on the false assumption that the listing price is an accurate reflection of market price.

And finally, that 95% is an average. Of necessity, that means multiple homes were included in coming up with the number (even if that number was accurate . . . which it isn't.) Any one home is likely, statistically, to be either above or below the average. If you were buying 25 or 50 homes, then the average might mean something. But when you're buying just one, you have no idea where under that bell curve your prospective home falls.

Excellent question; excellent point.
0 votes Thank Flag Link Tue Feb 23, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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