active listing List to sales price ratio

[kevingrehan]

I am having a difficult time with this. When researching sold comparables in my market, say difference between list price $200,000.00 and sale price $150,000.00. $50,000.00 dollar difference. Market conditions summary will indicate this but when an active listing is currently listed at $180,000.00, but originally listed at $200,000.00, my client disagrees with my ratio adjustment. Client feels like my ratio adjustment should be from the $180,000.00 active list price and not the original $200,000.00 list price. Big difference. Active listing is in the process of lowering listing price to market expectations. This is extremely simplified but someone will understand what I am saying. There is little room for explination on market condition summary and no one can understand what I am trying to say anyway. Help?

 

[The Bob]

I can see your clients point. After all, that's what it was listed for at the time of sale. However, I use the original list price in my analysis since I feel it better captures what's happening in the market. Some of these price reductions are pretty dramatic. I think as long as you are consistent, it should still capture the trend. Maybe you fill the form out the way they want and then comment on original LP:SP ratio in the narrative section.

"LP:SP ratio of .94% above reflects LP at time of sale. Using the original LP shows that the ratio is .91% and reflects sharp price reductions for some of the comparables"

 

[Mary Tiernan]

I believe the Market Conditions form has an automatic carry-over feature through my software provider. . . .

 

[Mztk1]

The list price sale price ratio from the MLS is calculaed from current list price to sale price, not original list price. So you are not being consistent.

But list price/sale price ratios have got to be the dumbest adjustment we make and they are a carry over from the days when appraisers were guys with clip boards and very little else. You cannot predict the sale price of a house based on its list price and a ratio. That is known as the "Law of Large Numbers". If you have the ability to see the list price ratio of every sale in your market (or at least the range) what you'll find is saying there is a 95% SP/LP ratio sounds much neater than it is really is, it is misleading in its simplicity. Right now I am doing my market comments on a file and I am looking at my ratios. The average ratio is 94%, the median is 94% and there are 115 closings. So that sounds real good and certain. BUT, the ratio range is from 58% to 105%. How do I know if my comp will be 94%, 70%, 102% or anywhere else within the range. The simple fact is I don't and I cannot predict. I've altered my comments through the years, but right now my comment on SP/LP ratio, for this file, will read:

The list price to sale price ratio average is 94% in the subject market but the range is from 58% to 105%. One cannot predict the ratio at which a sale will sell using statistical analysis. This fact is known as *the law of large numbers*. Generally, a ratio average can be applied to a pool of available listings and a reasonable average price for the pool as a whole can be projected, but application to any one single sale would produce unreliable results. Therefore, the ratio adjustment is not made and the listings are seen as a soft cap on value only.

 

[Dontbethatguy]

Mztk1, Amen!
No matter how good your statistics are, the variables of an individual case render them unreliable and misleading (regardless of the weight given to your listings).

 

[DMZwerg]

I actually track minimum, maximum, average, and standard deviation for my market areas. For one major city in my area the range was 33% to 126.57% with an average of 89.3% in January and 31% to 141.03% with an average of 89.9% in February.

As you can see it varies from month to month. I collect all an export of MLS sales data for the city after the 15th of the next month and dump it to Excel (Open Office actually) and graph all sorts of things. We have found graphs to be very useful when dealing with people who try to tell you a market is increasing, decreasing, or that your numbers were wrong.

My boss uses a statistical function of the local MLS to give both SP/LP ratios as well as SP/OLP ratios and puts the chart right into the report at times, but always does it to have the info on hand in case of problems like yours.

Good luck!
-D. M. Zwerg

 

[Doug Smith SRA]

Reconcile

There are four levels of input, the whole market, the neighborhood, the comparables reasonably similar and the the comparables used in the report.

I take the four or five settled sales used and do a quick calculation of those list/sell percentages, then reconcile with what the overall market is doing. I generally will place more weight on what is happening in the settled sales of the most similar homes used in the report. There is also some benefit of having confirmed those sales with a real live broker involved in the listing and therefore the knowledge level is higher about what is going on relative to the subject property and competing properties represented by similar sales.

There is another hidden factor in the process. Better real estate brokers tend to show better list/sell ratios. In most cases, more expensive homes are generally handled by more adept real estate agents. I have found over time there are tiers of differing list/sell ratios which is a persuasive argument not to use more overall market ratios and narrow down the field.

But like any conclusion, market data has to be reconciled so there is no really one good answer or figure to tie into.

Doug

 

[Peter LeQuire]

As a casual observation in the sales price/list price ratio discussion, it seems that, as the market softened around here, that ratio declined, as properties were listed in the context of the price increases that had gone on for the past however many years. Seller expectations were framed in the context of ongoing, significant price increases, and real estate brokers were aggressively listing properties to stay ahead of that trend. Reality really didn't appear to settle in until the number of sales nosedived in (arbitrarily) early last year. (That appears to be consistent with what Doug Smith is saying about better brokers.)

Doug is also right in advising looking at several tiers: there are around here market segments (specific price ranges and perhaps certain areas or property type) that do not reflect market wide trends.

 

[fifteen]

It might work if the same realtor was listing all the comparables and their skill level in pricing was extraordinarily accurate (within 5%) but that's never the case. The whole ratio thing appears to me to be input to reconcile their AVM's to a definitive % range going forward. Nothing beats hands on and no mathematical model can compensate for the vast array of market inconsistencies like a skilled appraiser.

 

[DMZwerg]

Nothing beats hands on and no mathematical model can compensate for the vast array of market inconsistencies like a skilled appraiser.

For some reason I get the feeling you do not fully comprehend the term "mathematical model". Did you mean "mathematical formula" instead? I ask because what you do "intuitively" and "different every time" can actually be/follow a mathematical model, thus my confusion.

If you are trying to convey that, due to local market segment variances, computer programs tend towards oversimplification and thus error I would tend to agree with you.

Sorry, being a Mathematician I can be a bit sticky about terminology at times.

-D.M.Zwerg