Why List Price to Sales Price Ratios Are Useless Agent Comparisons

business, finances and economics - businesswoman studying economics and financesI get it that’s it’s super difficult for many people to hire a Sacramento real estate agent, but comparing list price to sales price ratios is meaningless. I also realize that it’s especially challenging to hire an agent if those same people don’t really understand the profession nor harbor much respect for agents. It’s tricky for some of us to operate in an environment where so many in the public openly despise real estate agents. I think our popularity lies somewhere between used-car salesman and funeral home directors. What a wonderful world.

The way I make it through decade after decade of selling real estate is not to pay a lot of attention to the negative opinions that some people form because they don’t apply to me. I know that I do an excellent job for my clients, and these people are happy with my performance. Sometimes, though, I run into potential clients who have not dealt with a real estate agent like myself, and they don’t understand how I do what I do, and they expect to understand it instead of appreciate it. The only way to really understand the real estate business is to put on my six-inch heels and amble down railroad tracks wearing headphones with your back to the oncoming train.

Although I have never been asked for my list price to sales price ratio, a potential seller asked me for it. I didn’t even know my number because it carries no value. It’s like a Select Comfort sleep number. Some people like 40 and others 100. I ran my production numbers for last year, and that number is 104.21%, including the good deals buyers got –which contained some under-market transactions in a seller’s market when most buyers paid over-market, if they were able to buy at all in last spring’s frenzy.

See, this is the problem with list price to sales price ratio. So many variables. You can have a short sale, for example, in which the market value is, say, $300,000, but the bank demands $310,000 at the 11th hour, holds the buyer hostage, and it ends up closing at $310,000. Does that make the listing agent a much better agent? Not really. Out of the agent’s control. Or, what about the sellers who insist their home is worth $500,000 and secretly hope a buyer will lowball. I take some of those listings because it’s not my place to choose the sales price. If that overpriced home finally sells at $450,000, does that make me a bad agent? Not really.

What about changing markets? Markets that shift from a seller’s market to a buyer’s market, which can happen in any given time period. That affects the list price to sales price ratio. On top of this, there are a dozen other scenarios that can affect these ratios, including who is to say an agent who routinely sells at 104% is not deliberately underpricing her listings? Hmmm? But probably the biggest factor is every agent has the ability to change the list price to match the final sales list price prior to closing, and then the ratio is 100%. I know some agents who do it just so they can say their ratio is 100%.

List price to sales price ratios mean very little, and then mean even less when an agent’s production is limited to say, 6 or 8 homes a year. The moral is don’t judge an agent on list price to sales price ratios. If an agent with a high ratio is telling you it’s meaningless, that in itself should speak volumes.

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