I noticed something interesting when I was previewing listings yesterday in Austin Lake Estates. Several homes were priced currently at more than $20K below the original list price (which appears at the bottom of the agent listing printout). This made me start wondering about how accurate our reported sold/list price ratio is, so I decide to investigate further. My findings are below.
When I post my monthly Austin real estate market stats, one of the data points provided is the sold/list price ratio. That is, the sold price divided by the list price. This tells us, for example, that if a home listed for $200,000 sells for $190,000, that the home sold for 95% of the list price. I track this stat because it informs us of the strength of the seller’s side of the market. As sold/list price ratios trend downward, this tells us that sellers are having a harder time obtaining their asking price, and buyers are experiencing increasing negotiating power. For September 2008, the sold/list price ratio (96.22%) remained about the same as Sept 2007 (96.25%), indicating, at first glance, that sellers are obtaining about the same sold/list ratio as a year ago. Or are they ….?
Let’s look at the chart below, and notice that I’ve added an additional piece of data – Original List Price – to the mix. Note that the chart is for Sept 2007/2008 sales only.
The first word that comes to mind when looking at the 2007 chart, is “ouch”. What the standard sold/list price ratio does not tell us is how far the seller came down from the original list price. But the chart above paints a nice picture of the difference sellers experienced between 2007 and 2008. Let’s take a closer look at this.
The “list price” reported on sold homes, as provided by the MLS, is “final list price”, which is the last list price that the home was marketed at prior to being sold. So, if in our example, the home that was listed at $200,000 and sold for $190,000 was originally listed at $210,000, then the seller actually came down $20,000 (or roughly 10%) from the original list price and sold the home for 90.48% of the original list price, not the 95% that is reported in the MLS output that I normally use.
I actually can’t get the MLS software to produce this statistic. Instead, I have to export the raw data, import it into excel, and apply the formulas. This is probably why it’s not a statistic typically reported.
So, if instead of looking at just the final list price, but instead at the original list price, we can see from the chart above that sellers in 2007 were caught off guard by the market shift that began to materialize Q3 2007. The sold/list price in Sept 2007, using the original list price, was 86.21%. Wow! That’s a huge drop from the original list price. It’s much more painful and difficult for a typical seller to sell a home that was originally listed at $299K for a reduced price of $257K ($42K drop) than it is for a seller to start at $268K and eventually sell for $245K ($23K drop).
In 2008, the sold/list price ratio, using the original list price average for Sept 2008, is 92.23%. So, even though the standard sold/list ratio for Sept 2007 compared to Sept 2008 appears to be virtually unchanged, a look deeper into the stats reveals that sellers in Sept 2008 were pricing their homes much closer to eventual sales prices than was the case a year earlier in 2007 when sellers were listing homes at exceedingly optimistic list prices.
Thusly, sellers in 2008, wiser and less optimistic than the 2007 sellers, are feeling a great deal less pain at the closing table as they’ve sold for only a $23K drop in original price compared to an average $42K price drop of the sellers a year earlier.