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Sale-to-list ratio: Why it matters

sold home in california
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sold home in california
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When you sell your house, naturally, you want to receive the highest possible price for it. If you’re a homebuyer, you’re looking to buy a home at the lowest possible price. Of course, the price point where both parties ultimately meet depends on market conditions and other factors.

Buyers, sellers and real estate professionals can measure the difference between a home’s list price and what it actually sells for using what’s called the sale-to-list ratio. Understanding how this ratio works can help you identify negotiating trends, such as whether it’s a buyer’s market or a seller’s market for the real estate in your area.

Defining the sale-to-list ratio

As its name implies, the sale-to-list ratio (aka the sales-to-listing or list-to-sale ratio) measures the difference between the final purchase price and the original asking price of a property. You can determine the ratio by dividing the final sale price by the last list price and multiplying that number by 100 to express the ratio as a percentage.

For example, let’s say a seller lists a house for $415,000 but ultimately sells the home for $403,800, the median price for a new home in the U.S. in July 2022, according to the National Association of Realtors. You can calculate the sale-to-list ratio for this property as follows:

  1. $403,800/$415,000 = 0.973
  2. 0.973 x 100 = 97.3 percent

In this example, the sale-to-list ratio is 97.3 percent, meaning the home sold for 97.3 percent of its list price. This figure — the fact that it represents a sum below the asking price — indicates the buyer may have had a bit more leverage in this negotiation.

Conversely, when a home sells for more than its list price, the sale-to-list ratio will be over 100 percent. In that case, a number over 100 percent may reveal the seller held more leverage, perhaps receiving multiple offers for their property.

Sale-to-list ratio: Why you should care

Whether you’re a buyer or seller, looking at the ratio of the selling price to the asking price can help you gain insight into how to negotiate a transaction. You may find additional value by calculating the sale-to-list for a group of homes, which you can do by adding up each home’s ratio and using the average of the total.

Arming yourself with this information may help you measure an agent’s performance. By calculating the sales-to-list ratio of a Realtor’s recent transactions, you can get a sense of whether the agent is getting the best deal for their clients or yielding too much negotiating power to their counterparts on the other side. Of course, you’ll need to compare the agent’s sale-to-list ratio with that of other local agents since the numbers could be skewed if you’re in a buyer’s or seller’s market.

Let’s say the sale-to-list ratio in an area is 107 percent, with homes selling for 7 percent more than their listing price. As a home seller, you could conceivably price your home 7 percent higher than comparable sales in the area and support that asking price with data — the sale-to-list ratio. If successful, you could get more money for your home, resulting in higher net proceeds.

Keep in mind, the sale-to-list ratio may not matter as much — or may be distorted — in a hot market where bidding wars for properties are common. In such conditions, the buyer’s primary motivation is simply to get into the home and avoid being outbid. In a more temperate market, however, shrewd negotiators could use the metric to bolster their bids.

“If there is a savvy buyer who is working with a sharp real estate broker, a homebuyer could approach certain home sellers with an aggressive offer that will be backed by data and not strictly based on the highest and best offer,” notes Joshua Massieh, a real estate broker based in San Diego, Calif. “As the market shifts, this data point will help sellers and buyers alike in translating the data and helping both parties achieve their goals.”

Finding a local trusted agent

Buying or selling a home can be complex, but an experienced real estate agent can help you through the process. Additionally, a qualified agent can represent your interests and negotiate on your behalf. Here are a few ways to find the best real estate agent for your needs.

  • Ask friends and family for a personal referral: According to a 2021 study by the National Association of Realtors (NAR), 47 percent of homebuyers found their agents through referrals from family members or friends. Similarly, 68 percent of home sellers found their agent through a referral or used an agent they worked with on a previous transaction. While a recommendation from a trusted friend or family member carries weight, you still must vet each agent’s experience and qualifications carefully to help ensure you make the right decision.
  • Look for a Realtor: Realtors — with a capital R — are NAR members who have formally agreed to adhere to the association’s code of ethics, and have met its educational requirements. You can identify a member by the REALTOR® listed after their name on the website or business card. While it’s no guarantee of a great pro, the Realtor credential often indicates a certain level of experience and dedication on the part of the agent.
  • Check online reviews: Another option is to research online reviews for local real estate companies and agents in your area. You can usually find helpful reviews on Google or online marketplaces like Zillow and Redfin. Look for agents whose prior clients say are knowledgeable and available when needed.

According to Massieh, the most important quality you should look for in a real estate agent is their experience level.

“Transactions are jam-packed with legal jargon that no one understands except lawyers,” says Massieh. “Find a real estate professional that knows the contract like the back of their hand and someone who is not afraid to be aggressive with the other party.”

Meet with an agent before hiring them to represent you. Don’t just ask about their track record of successful transactions — ask specifically about the sale-to-list ratio of those transactions. It can give you a sense of how good a deal they help clients score, be they sellers or buyers.

Written by
Tim Maxwell
Contributor
Tim is a freelance personal finance writer and blogger with a particular focus on credit cards and consumer lending. In 2002, he stumbled upon a copy of "The Millionaire Next Door," by Thomas J. Stanley and William D. Danko, which ignited a passion for learning and sharing fact-based money principles. Tim has a passion for demystifying personal finance and helping people live their best lives.
Edited by
Senior homeownership editor