How much of your asking price will you get when you list your home today? Honestly, it depends on how in line with the market your asking price is. In the current market, it sure feels like the sky’s the limit. While it appears that sellers are getting anything they want for their homes right now, in reality, some are not. While bidding wars and quick marketing times are common right now, there is still a cap on what people are willing to pay. There are many reasons for this. Affordability is one. Another is that many buyers are becoming more informed about market value and do not wish to pay more than the current market value. That’s why in some contracts, the buyers stipulate that the home must appraise at or above the contract price. This is becoming more common.
Let’s talk about some market evidence that shows that not all sellers are getting what they initially list their house for.
LIST TO SALES PRICE RATIOS
What is the list to sales price ratio? It is the ratio between what a home sells for in relation to its listing price, reflected in terms of a percentage. When calculating this ratio, I use the most recent list price. I measure it that way because a seller may have the originally listed the price unrealistically high. Especially in the current climate. They may need to reduce their asking price numerous times before getting into the ball park of what is realistic for the market. By the last price reduction, typically the listing price is more in line with the market. It is noteworthy that when the MLS (at least in my area) calculates this adjustment, it is also based upon the last price reduction. It is a measurement that can be useful.
Appraisers use active listings and pending sales as supplemental data. This information can be very helpful in indicating where the market is currently at and where it appears to be going in real-time vs sales that only offer historic data. When prices of comparable properties are increasing or decreasing in any given market, time adjustments are made. Providing active listings or pending sales is a good way to further demonstrate that these are supportable.
How is the ratio determined? If a home is listed for $100k and sells for $95k, there is a difference of $5k. So, the home sold for 95% of what it was listed for. In an appraisal, if the appraiser is using active listings, a list-to-sales price adjustment is made to reflect what that property is likely to sell for. In the example above, there was 5% difference between what that property sold for in relation to its sales price. Analyzing numerous sales, the appraiser may determine that this is the typical ratio in a particular neighborhood. Therefore, if active listings are provided, a -5% adjustment would be applied to the listing price of the comparable listing. There are currently neighborhoods that I have appraised in lately in which the majority of homes are selling at or above their list price. If this is the case, then no list-to-sales price adjustment would be warranted. I have provided a few examples below.
Here are some charts taken from the MLS in my area. The data reflect that overall, properties in these areas are not typically selling for 100% of their list price, but they’re getting close. The first two charts are reflective of all residential sales Cuyahoga and Summit counties. Note that there is a clear seasonal change throughout the year. In the summer months in this area, homes typically sell closer to asking price than in the winter months. This is due to the summer months traditionally being more active with more market participants and competition.
Here are a few more examples from cities in the greater Cleveland/Akron area. I pulled all single family residential sales from these cities. The information was taken from June 14th of 2008 and June 14th of 2018. It’s interesting to see the changes. Clearly, the current market is much stronger than in 2008 when the housing bubble was bursting. In 2008, the list to sales price ratio’s were in decline in many areas.
City of Lakewood
City of Brecksville
While not all sellers are not getting 100% of what they are asking for, when priced properly for the market, many are in the current market! The differences between 2008 and now are interesting. May future months and years continue to see high list to sales price ratios!
Hopefully you found this information helpful. If you are looking to purchase a home and your lender says you don’t need an appraisal, or you would like to sell your home and want to price it accurately, call a local appraiser. In the grand scheme of things, it’s a small price to pay. An appraiser can help you close the gap between what you list your home for initially and what it sells for!
Please feel free to share your thoughts. Thanks for reading my post! Have a great day!
Here are some other blogs and podcasts I enjoyed recently. I hope you will also!
Do You Confirm Comps or Verify Them? (Written By Tim Anderson, MAI, MNAA) – George Dell’s Analogue Blog
Like Housing, Raccoons Can Reach Their Peak View in Full View of Spectators – Jonathan Miller’s Housing Notes
Dear USPAP Instructor: Signatures on Certs and Subpoenas – The Appraiser Coach Video Podcast
The Emerging Trend of Storage Container Homes (Q & A) – Sacramento Appraisal Blog