Seems a lot of people consider negotiation as “ask less than the list price and expect that they’ll come back somewhere in the middle.” At its’ simplest sure, that might work, but it also helps to know at what price sellers are pricing their homes, and also at what price buyers are buying those same homes for. This is where the list to sale ratio comes in.
Now, it’s not perfect, but it’s helpful, and the reason why it’s helpful is because it shows what kind of momentum, plus or minus, the market has at any given time. Should it be the only data point you and your agent examine when figuring out where to price your home, or at what price to make an offer on a home? Absolutely not.
For instance, here are some charts showing the average list prices (second column from the left) and average sales prices (third column from the left) for townhouses in Radford in 2013. Note – these figures include foreclosures, which are not considered “arm’s-length transactions. Their impact on the market in 2013 was not statistically significant, so I left them in.
So what does the list to sale ratio show? In this case, not much. Conventional wisdom would say that with only 13 sales for the entire year, townhouse owners in Radford would be giving up more of a discount on their list price than single-family owners, when in reality the list to sale ratio for townhouses was less (96.7%) than for single-family homes (94.9%). Owners of single-family homes in Radford actually gave up MORE money on their sale than townhome owners.
The long and short of it is this. List to sale is an interesting tool, but not always a helpful or truthful tool. Use it cautiously. 🙂