The selling-price to asking-price ratio is one of the most important statistics available about your real estate market. It is simply the percentage of the final asking price that is agreed in a contract. When it is calculated for a large number of home sales, the ratio is invaluable in determining what a home’s asking price should be, once the fair market value is known. The ratio tells how much "fat" is required in the asking price, on the average. Sellers and buyers alike usually are surprised to find the ratio is frequently well above 90%, even in markets that are slow.
For illustrative purposes and ease of calculation we will assume at this point that the ratio for your market is 95%. The 95% ratio confirms that the asking price should be set 3% to 5% over the fair market value as established by your careful market value analysis. This is a price that should bring an offer. Alternatively, with the price too high there will be no offers to negotiate. Another way to interpret a 95% selling price to asking price ratio is that the average home does not obtain a viable offer until it is priced within 5% of its fair market value. This has been an illustration: Do not assume the selling price to asking price ratio is 95% in your market. It must be verified independently. See if you can extract the necessary data from your MLS database and make the calculation yourself.
Your seller needs to know that a home must be priced correctly in order to sell: If it is overpriced it will be seen only by buyers who can obtain more for their money elsewhere. A Chevrolet will not sell in a Cadillac showroom. That is not what those buyers are looking for. To give the Chevrolet a Cadillac price in the hopes of fooling a buyer is even more ludicrous. In any price range, it is the properly priced properties that jump out as good value and obtain offers. Realize also that you and your seller can not ask $600,000 for a home and end up with a (95%) contract for $570,000 if the fair market value is only $540,000. "The market" is much too clever for that.
In major markets where a computer database search is employed to sort out homes for a buyer, a little-known advantage will be gained by pricing exactly on round numbers. We're not selling clothing, groceries, or used cars. By pricing on a round number you will get a few more visitors and sell a bit faster. An example will help:
• Agent A has buyers who are looking in the $550,000 to $600,000 range.
• Agent B has buyers who are looking in the $560,000 to $640,000 range.
• Agent C has buyers who are looking in the $600,000 to $650,000 range.
If your home is priced on the round number $600,000, it will be considered for showing by all three agents above when they do a MLS computer search for available properties. If your home is priced at $599,999, only Agents A & B will find your home in their computer output. Agent C will not even see that your home is for sale. Worse yet, buyers searching on-line tend to search in round numbers, even when their search-site permits otherwise.
Of course not every home can be priced on an even $100,000 interval, but use increments of $10,000 or prices ending in $25,000 or $75,000. This pricing tactic will gain you a competitive edge over most others. "Over how many others," you ask? Just check local home prices to see how many of your competitors understand how the real estate market really works.
For more on pricing and a “5% rule” see
http://davidr.net/topics.html#TT414 Perspicacity. (Huh?)
This article is excerpted from David Rathgeber's
AGENT'S GUIDE to REAL ESTATE
which is free online at http://www.davidr.net/AgentsGuide.html