Ratio Shows Real Results
The price a buyer pays for a home is a true reflection of the home's value in the market. In most cases, the final sale price is not the same as the home's list price. Real estate professionals track list-to-sale ratios to establish genuine sales values in their local area. To calculate the metric, divide the actual sale price by the property's final list price and express the result as a percentage. For example, a home that is listed for $200,000 but sells for $195,000 has a list-to-sale ratio of 97.5 percent.
What the Ratio Means
A ratio above 100 percent tells the real estate agent that a home sold for more than its list price. This might happen where the seller receives multiple offers on the home. Conversely, a ratio less than 100 percent shows that a home sold for less than its list price. Real estate agents typically calculate the average list-to-sale ratio for a group of homes, so they can see at a glance which way the market is moving.
Useful in Price Negotiations
Looking at list-to-sale ratios can help homebuyers and sellers negotiate on pricing. For example, an average list-to-sale ratio of less than 100 percent shows that sellers generally accept less than their asking prices in that particular market. Home seekers may be able to secure the property by making an offer that reflects the average discount that buyers are receiving. Sellers reviewing the list-to-sale ratio can see at a glance whether their list price is too low or too high, and adjust the list price accordingly.
Use With Caution
Because the ratio uses the final list price for the property and not its initial list price, the metric tends to stick somewhere between 95 and 99 percent. That's because a seller who initially lists his home at an inflated price likely will reduce his asking price when he doesn't receive any offers. Over time, all prices tend towards the norm. Also, the final sale price does not give the complete picture of a home sale transaction. Financial concessions such as a contribution towards closing costs are excluded from the metric, but do affect a buyer or a seller's bottom line. So, while list-to-sale percentages can help you price a property right in order to sell, you should approach them with caution.