A sales to active listing ratio, also called a list-to-sale ratio, is an important tool for real estate professionals to gauge the strength and health of a market, or determine whether they face a buyer’s or seller’s market. Knowing these things has a strong effect on how a professional approaches property sales in certain areas, and allows them to determine how much to list a home for and what they can expect in terms of bidding wars. Hiring an experienced real estate professional or lawyer can save you thousands down the road.
Many people attempt to gauge a market based on how much homes are listed for. This is actually a poor metric that does not reflect the reality of the conditions. In truth, the best way to gauge the value of a home on the current market is to look at how many homes have been sold from the active listings.
The ratio is expressed as a percentage. It is a very simple calculation. For instance, if 20 out of 100 homes have sold in the last month, then the sales to active listing ratio is .20, or 20%.
What It Means
If a property shows a ratio closer to 100%, this means that your home will probably sell extremely well, as there is a very high market demand. The lower the ratio, the less likely your home is to sell — or at least sell at a high price. By calculating the value of a number of homes in the area, the professional can determine how the market is swinging — is it a seller’s market or a buyer’s market?
Knowing the list-to-sale ratio in a neighborhood can be a valuable tool for buyers and sellers. After all, when negotiating the price for a home it is very helpful to know what other homes are going for, and what the market conditions are.
Buyers can look at the ratio and use it to gauge the kinds of offers that are acceptable. Sellers will know whether their listing is too low and can adjust their asking price. Of course, having a real estate professional or lawyer can also help you negotiate in these kinds of situations.
Skewing Towards an Average
This metric tends to even out over time and create a tendency towards an average. It is generally over 95% accurate in determining a home’s market value. This is because most who list their homes too high eventually adjust their asking price.
Of course, there are circumstances that are not immediately factored into the ratio. For example, if a job boom began at the beginning of the month, this new demand may not show up for at least a month. On the other hand, just because homes sold really well last month does not mean the trend will continue; perhaps the market dried up after those homes were bought. Always consult a real estate agent to get the best data available.
Whether you are buying or selling a home, the sales to active listing ratio can be one of the most useful tools to have in your pocket. Without it, you could be overpaying for a new home — or could be losing money on a sale.