Another Real Estate Myth Uncovered
Today is a short post, inspired by a recent reader question, that allows us to pursue a "statistic" that many "real estate professionals" quote, but few truly understand. Today's topic is about the relationship between the asking price and the selling price (sales price to list price ratio) of homes that have recently sold.
While we will be utilizing information found in the Tallahassee Board Of REALTORS® Multiple Listing Service (Tallahassee MLS), I suspect my findings would be valid with information from any other MLS in the country. As you will see, our findings will much more subjective than objective.
Tallahassee Real Estate Blog reader "Ashley" asked:
I was wondering if you could provide me with some information on the median list to sale price ratio in the Tallahassee market. Do you know where I might be able to locate this information? If it is broken down by price range that would be even better. I would like to know for my own curiosity. I read your blog regularly, keep up the postings.Thanks. Ashley
This is a great question, but unfortunately the answer is not too easy to come by. The problem lies in the actual data and the people whom we rely upon to enter the data.
Real Estate Myth Uncovered
One would think this is relatively easy. Just look at all the sales in recent months, and divide the total sales price into the total asking price and viola! You have your answer. When we do this with data from the Tallahassee MLS for the past two years, this is what we see.
Based upon the real estate graph above, we could say that currently it looks like home sellers in Tallahassee are receiving 90% of their original asking price, and 96% of the recent asking price. Unfortunately, this is not really true.
MLS Data Is Arbitrary
Whenever you read a report about the ratio between sales price and list price of homes in a market, the results have been pulled from a REALTOR® MLS. In our case, the Tallahassee MLS has provided the data. What this analysis leaves out is the consideration of how many times the home has been listed and marketed. What if a home is listed at $400,000 and is on the market for 6 months and then fails to sell. Then, it is rel-isted at $375,000 and sells for $375,000. It would find its way into this analysis as a home that sold for 100% of its original list price.
Another situation that occurs often is when a property is listed at one price then goes off the market. All REALTORS® still know about the house, then suppose somebody a month later brings the owner a contract, even though the house wasn't on the market. This home would then be put in the Tallahassee MLS with a sales price the same as the list price (meaning 100% ratio again).
Yet another example, working the ratio in the other direction, is when a contract is brought on a property greater than list price, but filled with seller-assistance towards buyer's closing costs. For example, a property listed at $300,00 and selling at $301,000, but the seller agreeing to pay $18,000 in buyers closing costs. One could argue that this property sold for $17,000 less than the asking price, but in a statistical analysis, it would show it selling for more than 100%.
Many National Real Estate Reports Are Based Upon Myths
This is not the only statistic commonly reported but not actually worthy of reporting. How many times do you see a report showing "Days on Market" indicating how long it takes to sell a home in an area. Unfortunately, this statistic is just as skewed. I can tell you there are too many homes to count in the MLS that show a market time of 0 or 1 day, that actually were on the market for months and years, under a different listing agreement.
The moral of the story is this. Make sure you know the source of the information before you believe it at face value. Days on market, sales price to list price ratios, and even real sales values are often skewed, as they do not measure all events, terms and facts in the sale.
Average Sales Price To List Price Ratios By Price Range
Ashley did want to see this information by price range, so I have provided a table of information below from the Tallahassee MLS. This table is compiled with the sales price compared to the Original Asking Price. I suspect if a research company were to spend a lot of time and resources, it could screen each sale and determine the real sales price to list price ratio. Unfortunately, I am a "staff of 1," so this will have to suffice:
|Month||< $75K||$75K - $100K||$100K - $125K||$125k - $150K||$150K - $200K||$200K - $250K||$250K - $300K||$300K - $500K||$500K - $750K||> $750K||Grand Total|
The real estate graph at the beginning of this post used the "Grand Total" column for its results. The table above shows the actual break-down by price range. I'm not sure if the findings have any real value, though they may have some relevance towards trending. Unfortunately, you cannot say for sure whether it is the trending of the market, or the trending of REALTOR® techniques in posting the data in the Tallahassee MLS.
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