Sales Price to List Price Ratio

[Mike Kennedy]

The adjusting of a listing price to formulate a sales price for the listing is not USPAP compliant.

Factual Source? Gotta link?

 

[Mike Plumlee]

I make the sales/list ratio adjustment and explain:

The negative adjustment for listings' sale/list price ratio is made only to assist lenders /clients to reflect the historical data analyzed by the appraiser in researching the subject's market area activity. The negative adjustment is based on this historical percentage and may or may not be indicative of the final price concession. It is utilized solely to gauge the market's price concession in relation to the listing price. This adjustment is not a predictor of future discounts in pricing or negotiations nor does it factor in, or take into account any previous changes in the listing activity.

The listings included were designed to demonstrate what the present competition is in the market as of the effective date. Listings are provided to demonstrate current market conditions, and should not be construed as any indicator of current market value. Oftentimes properties sell below, as well as above, the listing price. Concessions, seller incentives, and discounts for listings are an ongoing unknown within a competitive market until the property actually sells. Appraiser cannot predict the motivations of parties involved in a transaction that has not occurred yet. No weight is ever given to these listings and they are adjusted only for the benefit of the lender. Reconciling the estimate of the subject market value against unknown events (the eventual sale of a listing) would be forecasting and misleading. The listings provided are adjusted only in order to further provide additional information. The entire weight of the opinion of value is to properties that have actually sold in the competitive market.

 

[EDWARD BERRY]

WE USE LISTINGS ON RELOS AND ADJUST THEM AT Same FACTORS AS SALES ALL THE TIME AND EXPLAIN. NO BIG DEAL UNLESS YOUR ESTIMATED VALUE IS MUCH ABOVE SUCH.

WHATS THE BIG DEAL?

JUST ANOTHER TOOL, USE IT IF YOU WANT. (REQUIRED BY MOST RELO COMPANIES NOW)

BACKWARD IN ARKIE LAND.

 

[CANative]

Taz... Sp/Lp adjustments are not for the purpose of predicting anything. The adjutment is just for correcting errors in setting the list prices commonly found in the subject's market for similar types of properties. I've been making these adjustments for at least 5 years.

 

[John Hassler]

I don't make an adjustment for SP:LP at this time as the data is of insufficient quality to be credible in my view. Here's why:

Problem 1 - SP:LP is derived only from sold properties. It fails to account for those listings which were on the market which did not sell (most likely due to being overpriced). When you apply the SP:LP adjustment to a listing you don't know whether you are applying it to one of these overpriced properties or one that will be a future sale. This isn't much of an issue if all/most listings in the market sell as is common in a seller market. On the other hand if there are a considerable number of listings which do not sell then the SP:LP ratio is likely too high to be applied to all listings

Problem 2 - How was the SP:LP derived is important. Was it calculated from the original listing price or the last listing price? Many MLS systems use original listing price (OLP). If your MLS uses OLP then that figure is only valid if applied to the OLP of the comparable, likewise if your MLS uses last listing price (LLP) it can only be applied to the LLP.

If you do use OLP what do you do in the following case? Say the SP:OPL is 90% but the listing you want to use has already been reduced to 85% of OLP. To apply the SP:OLP in this instance you would need to ADD 5% to that listing which goes against common sense. In the instance of using the SP:LLP, how do you know there will not be another price drop in the future for the listing you're using since its only valid against the LLP.

Problem 3 - While a median or average SP:LP can be calculated, there is usually a very wide range. Listing prices are often tied to a marketing strategy. Did the listing agent give the seller a high valuation just to get the listing? Or perhaps the agent & seller decided to list low just to get some action on the property.

I recently did a cookie cutter sale in a 5 year old tract. The neighborhood SP:LP ranged from 65% to 115% with a median of 95%. This roughly broke down to 35% of the sales having a SP:LP over 100%, and 40% of the sales having a SP:LP of under 90%. Only 25% of the sale sold within 5% of the median SP:LP which is a level of accuracy too poor for my comfort level.





For me personally, I do not use SP:LP adjustments for listing as I do not consider this a credible adjustment. Listings in an appraisal are only a snapshot of what the subject's competition is as of the effective date of the report. Nothing more and nothing less.

.

 

[Don Clark]

The adjustment (at least when I do it) is not "to formulate a sales price for the listing".

The Law of Probability. It's sort of like gambling. What are the odds.

 

[TJSum]

The adjustment (at least when I do it) is not "to formulate a sales price for the listing".

If this adjustment is not a prediction for any one listing, why are we placing that adjustment on the sales grid for that listing? Why not just give the ratio in the comment section and leave it at that. IMO when you do go ahead and make that adjustment, the reader of the report will think that is exactly what you are doing and why they are asking for it, no matter how many times you disclaim it.

WE USE LISTINGS ON RELOS AND ADJUST THEM AT Same FACTORS AS SALES ALL THE TIME AND EXPLAIN. NO BIG DEAL UNLESS YOUR ESTIMATED VALUE IS MUCH ABOVE SUCH.

WHATS THE BIG DEAL?

JUST ANOTHER TOOL, USE IT IF YOU WANT. (REQUIRED BY MOST RELO COMPANIES NOW)

BACKWARD IN ARKIE LAND.

RELO assignments are all about forecasting future value, it is not value of the day of report.

Taz... Sp/Lp adjustments are not for the purpose of predicting anything. The adjutment is just for correcting errors in setting the list prices commonly found in the subject's market for similar types of properties. I've been making these adjustments for at least 5 years.

What is the purpose of showing listings, if you adjust them to what you think they should be listed at, instead of the actual list price? They mean nothing if you just assign a value that you want, instead of what is actual. You are completely setting the market and not reporting it.

As to the OP, I agree with your view of using this ratio, but totally disagree with the statement you use. Do you really want to tell your clients to go with something better such as a BPO? Here is the statement I show below the grid for my contracts and listings and have never had a call back, stip or complaint.

"Comparable 7 is currently under contract, however the price quoted is the listing price only as contract prices are not made public until settlement occurs. No adjustment was made for the listing price status, as predicting contract prices could prove misleading given the assumptions required. No listing status adjustments were made on listing comparable 8 for the same reason. The median list price to sales price ratio for this marketing area during the past year was 97% as found on the 1004mc Addendum. The list price to sales price ratio supports the subject's value opinion for these two comparables. No adjustment was placed on the market grid for the LP/SP ratio so as not to mislead any reader of this report that it could be a prediction on what these homes will sell for."

The appraisers expertise should come in with selecting the best listings to show what is going on what the market, not picking any listing and then giving it a pretend price (list or sale). Sales show one thing, listings show something else, an important piece to the puzzle, but different, there is no need to try to equate them by assigning a pretend sales price.

 

[Mr Rex]

TJ, can you provide evidence that anybody has ever assumed that adjustments made to a listing was done so in order to provide a "projected sales price"? If so, what was the result of their mistaken assumption? Who were the intended users of said report? Did they assume that the sales price was before or after the other adjustments made to the listings for Site, Age, GLA etc etc? Just wondering.

 

[TJSum]

TJ, can you provide evidence that anybody has ever assumed that adjustments made to a listing was done so in order to provide a "projected sales price"? If so, what was the result of their mistaken assumption? Who were the intended users of said report? Did they assume that the sales price was before or after the other adjustments made to the listings for Site, Age, GLA etc etc? Just wondering.

That is why the clients are asking for it, they are trying to "equate" listings to sales. If the clients really understood what listings show and why they are important, they would not be asking for this and not trying to equate them. It just reminds me too much of the junk science involved with global warming...

The key is to pick the proper listings to show, that is what is important.

 

[Mr Rex]

Who are these mystery people that think the adjusted values of the comparables or listings are indicative of sales price of the comparable or listing? Do you have HOs suing someone when they find out your adjusted value of their sold comparable is lower than what they paid?