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Sale to list ratio adjustment

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Sean Wilson

Thread Starter
Freshman Member
Joined
Sep 2, 2003
Professional Status
Certified General Appraiser
State
Georgia
I have a client asking me to make a sale to list ratio adjustment for an Active listing Used in a report. What would be the correct way to perform this adjustment?
 

dobie

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
New Jersey
I have a client asking me to make a sale to list ratio adjustment for an Active listing Used in a report. What would be the correct way to perform this adjustment?

The way this is typically done is to take the SP/LP ratio for that market from your MLS and then apply it to your listing. So, if the ratio is 97% you would adjust a $250,000 listing by a negative $7,500 ( .03 x $250,000 = $7,500 ).
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
All of our adjustments are based on historical data. The market paid "X" for a bath and a bath adjustment for "X" was made. This doesn't mean that in every case the market paid that amount for a bath, nor that that amount is what they will pay the next time for a bath.

The list price sale price ratio is not very different. Look at your market data. You can use your comps, or you can use statistics from the local MLS, and calculate or find what the LP:SP ratio is. Let's say it is 96%...you then make a 4% adjustment to the list prices of the listings.

Because each sale is separately negotiated, comment on the potential likihood of variation in the actual contract price.

The most important thing to do when selecting comparable listings for support is to be sure the list prices are in line with the market. If you use sales that are priced above or below market for whatever reason, you adjusted value will be skewed and an explanation will be required.
 

The Matrix

Senior Member
Joined
Apr 28, 2003
Professional Status
Certified General Appraiser
State
Colorado
Who's the professional appraiser you or the client. If the client is making the call on the adjustments ...why do they need an appraiser???
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
I still can't see why the LP / SP ratio is considered solid enough ground to stand on. In this market there are just as many listings that expire with no offers. What would happen to the ratio if these expired listings were included in the mix. It can't be done, because there is no sale. One is making too much of an assumption by applying this ratio that our listing will actually go under contract. One would also be assuming there will be no more price drops before a contract offer is obtained. It also leaves out the amount of seller paid closing help which at times has the biggest impact on that LP/SP ratio. Are new construction listings included in this mix, if so, they could also throw that ratio out of whack.

IMHO when clients demand this adjustment, they are treating this listing data totally wrong and are trying to find a way to "equate" them to actual sales. I do not want to lead them down this road, because all they are is listings, period. If the proper listings are utilized they demonstrate the value ceiling as of the effective date based on the theory of substitution and that is their only purpose.

How many times have appraiser's said in the forum over the past several months, "who knows how low those listings will have to go to see some action, all they are telling us is what the properties are not worth". When that truly is the case, that LP/SP ratio could give the client a false sense of security.
 

Tom Woolford

Elite Member
Gold Supporting Member
Joined
Nov 20, 2005
Professional Status
Certified Residential Appraiser
State
Florida
I generally do what they want, disclose that no weight is placed on the data as it is too speculative and does not produce credible results. I just did one where the L/S ratio was from 0 to 30%.
 

Abzntminded

Sophomore Member
Joined
Nov 21, 2007
Professional Status
Licensed Appraiser
State
California
I still can't see why the LP / SP ratio is considered solid enough ground to stand on. In this market there are just as many listings that expire with no offers. What would happen to the ratio if these expired listings were included in the mix. It can't be done, because there is no sale. One is making too much of an assumption by applying this ratio that our listing will actually go under contract. One would also be assuming there will be no more price drops before a contract offer is obtained. It also leaves out the amount of seller paid closing help which at times has the biggest impact on that LP/SP ratio. Are new construction listings included in this mix, if so, they could also throw that ratio out of whack.

IMHO when clients demand this adjustment, they are treating this listing data totally wrong and are trying to find a way to "equate" them to actual sales. I do not want to lead them down this road, because all they are is listings, period. If the proper listings are utilized they demonstrate the value ceiling as of the effective date based on the theory of substitution and that is their only purpose.

How many times have appraiser's said in the forum over the past several months, "who knows how low those listings will have to go to see some action, all they are telling us is what the properties are not worth". When that truly is the case, that LP/SP ratio could give the client a false sense of security.


I'm afraid I don't understand your post - false sense of security of what? Of what the subject is NOT worth?

Our clients are asking for listings only as a value ceiling, as you mention in your 2nd and 3rd paragraph, not equating them to actual sales.

The LP/SP ratio is just an attempt to address the fact that they haven't sold, and it only drops the ceiling further.

It would be the same if the subject had been recently listed and not sold; there should be some downwards adjustment of the lowest list price to establish the value ceiling.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Sean,......It need not be too complicated. They are only asking for your observations of what the pulse of that market has recently been. The collective activity of the refined group of sold-comparables that you scrutinize closely will tell you what that % could (quite likely) be for an active listing out there today. You are already giving database focus to those properties which are most-recent, most-similar and most proximimate to the subject. Remember, you are considering to introduce an active listing that will ALSO be most-similar and most-proximate ! How the buying public will "react" to those active listings should be much the same as they would "react" to your subject. For anyone to ever select and present INappropriate comparables at ANY time......simply blows the entire process !

Let's say you have a solid half-dozen recent sales from which the best three will go on the 1-2-3 grid page. You have researched the full (prior expired and then renewed in 24-48 hours, and those over-lapping and concurrent) listing histories of those sales and you notice their first offering price and the final posted "selling price". You will have verified whatever concessionary monkey-business may have skewed the ACTUAL selling price of the house+land, and thus allowed the truest %-of-original list to be figured.

Let's say those (6) %-of-original-list prices show a range of 92% to 96%.....and you have three active listings of very similar properties which began their listings on Feb. 1st and are still at their first offering price. What I would likely do.....is consider that 94% is typical and reasonable for the participating sellers of homes in the subject's market area.....with all marketers being astutely guided and advised by an elite corps of experienced realty agents ! (No one ever lists too high.....do they ?)

In the second line down of grid column one might place "-6% price negot." (which fits in that field) and then perform the mathematical subtraction of 6% from the first/current offering price of that "Listing" comparable. In the sale-date field I type "Active List". One then completes the rest of applicable adjustments as that grid column progresses and ends up with a final (most-probable) adjusted selling price.....if the sun still continues to rise in the east each morning until that property eventually sells.

One needs to be sure to also discuss the trend details for Days-on-Market that are being observed for all possible comps, and the fact that concessionary offers in any increasingly frenzied marketplace MIGHT also influence any one of those currently active listings as a contract comes forth.
 
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