When you sell your home, of course, you want to get the highest possible price for it. If you are buying a home, you are looking to buy a home at the lowest possible price. Of course, the price point at which the two parties eventually meet depends on market conditions and other factors.
Buyers, sellers, and real estate professionals can measure the difference between a home’s list price and what it’s actually selling using what’s called a sale-to-list ratio. Understanding how this ratio works can help you identify negotiating trends, such as whether it’s a buyer’s market or a seller’s market for real estate in your area.
Determine the sales-to-list ratio
As its name suggests, the sell-to-list ratio (also known as the sales-to-list ratio or the list-to-sale ratio) measures the difference between the final purchase price and the original asking price of a property. You can determine the percentage by dividing the final selling price by the last price list and multiplying this number by 100 to express the percentage as a percentage.
For example, suppose a seller registered a home for $415,000 but ultimately sold the home for $403,800, which is the median price of a new home in the United States in July 2022, according to the National Association of Realtors. You can calculate the sell-to-list ratio for this property as:
- 403,800 USD / 415,000 USD = 0.973
- 0.973 x 100 = 97.3 percent
In this example, the sell-to-list ratio is 97.3 percent, which means that the home sold for 97.3 percent of the list price. This number – the fact that it represents an amount less than the asking price – indicates that the buyer may have a little more leverage in these negotiations.
Conversely, when a home is sold for more than its list price, the sell-to-list ratio will be more than 100 percent. In this case, a figure above 100 percent may reveal that the seller has more leverage, possibly receiving multiple offers for his property.
Sell-to-list ratio: why you should care
Whether you are a buyer or a seller, looking at the selling price to ask price ratio can help you gain insight into how to negotiate a deal. You may find additional value by calculating sell-to-list for a group of homes, which you can do by adding the percentage of each home and using the average total.
Arming yourself with this information may help you gauge the agent’s performance. By calculating the sales-to-list ratio of a real estate broker’s recent transactions, you can get a sense of whether the agent is getting the best deal for their clients or giving too much bargaining power to their counterparts on the other side. Of course, you’ll need to compare the agent’s sell-to-list ratio with that of other local agents because the numbers can be skewed if you’re in a buyer’s or seller’s market.
Let’s say the sell-to-list ratio in an area is 107 percent, with homes selling 7 percent more than their listing price. As a home seller, you can price your home 7 percent higher than comparable sales in the area and back the asking price with data – the sale-to-list ratio. If you succeed, you can get more money for your home, which leads to higher net returns.
Keep in mind that the sell-to-list ratio may not be as important – or it may be distorted – in a hot market where bidding wars for real estate are common. In such circumstances, the buyer’s primary motive is simply to get into the house and avoid bidding on it. However, in a more moderate market, savvy negotiators can use the metric to boost their offerings.
“If a smart buyer is working with a sharp real estate broker, the home buyer can approach specific home sellers with a solid offer that is backed by data and not strictly based on the highest and best offer,” says Joshua Masseh, a real estate broker based in San Diego, California. “As the market changes, this data point will help both sellers and buyers translate data and help both parties achieve their goals.”
Find a reliable local agent
Buying or selling a home can be complicated, but an experienced real estate agent can help you through the process. In addition, a qualified agent can represent your interests and negotiate on your behalf. Here are some ways to find the best real estate agent that meets your needs.
- Ask friends and family for a personal referral: According to a 2021 study by the National Association of Realtors (NAR), 47 percent of home buyers found agents through referrals from family members or friends. Similarly, 68 percent of home sellers found their agent through a referral or used an agent they had worked with in a previous transaction. While the recommendation from a trusted friend or family member does carry weight, you should still carefully examine each agent’s experience and qualifications to help ensure you make the right decision.
- Looking for a realtor: Brokers – with capital R – are NAR members who have formally agreed to abide by the association’s code of ethics, and have met its educational requirements. You can select a member through the REALTOR® listed after their name on the website or business card. While it doesn’t guarantee a great professional, Realtor’s credentials often indicate a certain level of expertise and dedication on the part of the dealer.
- Check out the online reviews: Another option is to look for online reviews of local real estate companies and agents in your area. You can usually find helpful reviews on Google or online marketplaces like Zillow and Redfin. Look for agents whose previous clients say they are knowledgeable and available when needed.
According to Massih, the most important quality you should look for in a real estate agent is their level of experience.
“Transactions are full of legal jargon that no one understands except for lawyers,” says Masih. “Look for a real estate professional who knows the contract like his hand, and someone who isn’t afraid to be aggressive with the other party.”
Meet with an agent before hiring them to represent you. Don’t just ask about their track record of successful transactions – ask specifically about the sell-to-list ratio for those transactions. It can give you an idea of how good a deal it is helping customers achieve, whether they are sellers or buyers.
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