Stat Geek type of question: What's a good list-to-sales price %?

Question

Out of curiosity, I decided tonight to search the "stats" of a local Realtor b/c I wondered how her list price stacks up against the final sales price. By way of a brief background, another investor has brought me a few "deals" that I've had to pass on b/c my ARV always winds up far lower than his, w/his comps coming from this particular Realtor. But, me being the relative newbie in the equation, I wondered whether I was being too conservative.

So here's what I found: this person was the Listing Agent for 14 sales during the past year, for which the sales price averaged 85% of asking price. If I remove short sales from the equation - taking into account that the bank may set the price from their own BPO instead of the agent - then I have the sales price being 89% of asking price on 8 total properties.

So my question is: how does that stack up? If I remember correctly, @J  Scott is in the range of 96%. What do you other flippers see for your results? What do you aim for (aside from the obvious answer of "100%, of course!!" haha).

I have also dived a little farther but won't bog down this question any more - I also checked how many of those listings were listed multiple times (expired or withdrawn, for example, and re-listed); and I also have Days on Market. But for now I'm wondering about the % ask price-to-sales price portion.

Thanks for any input!

J Scott · Answer

Karin -

This is an awesome post, and I wish I would have thought of this myself, as I most certainly would have included it in my book as a fantastic way to vet potential listing agents for your properties!  Funny how obvious it is, but yet I've never heard anyone discuss this -- an ARV is only as good as the person who determines it, and knowing how well that person has done in the past is very indicative of how they'll do in the future.

Of course, there are some things you can't account for.  For example, some investors like to list their properties very high for a couple weeks just to see if they can get more than they really expect (which can make the ratios look worse).  But, you should be able to account for this by looking at how long it took to make the first price drop (if less than a week or two, it may have been a "test the waters" strategy).

Add in the total DOM, and you start to get a great picture of how good the listing agent was at estimating the ARV and getting the house sold.

Personally, we like to go for the quick sale, and do our best to price our houses so that we can maximize profit while minimizing DOM.   Over the 40 or so houses we listed ourselves in Atlanta, our average selling-to-list price ratio was just under 96%.  In Milwaukee, where we use a real estate agent, we're closer to 85% -- part of that is that we missed some deadlines and had to list at less opportune times, but a big part (in retrospect) is that our agent was overly optimistic with values.

While we've often thought about that number, it never occurred to us that we could use that metric to help find great agents and validate their knowledge of the market.  Thanks for giving me a new tool for our toolbox!!!

Btw, can I add this tip to the next revision of my book if I give you credit?  :-)

Karin Crompton · Answer

Oh my God, @J  Scott - you've made my year. lol Thank you for the kudos; I'm only trying to emulate your business style, so I can't take much credit. :) Please do go ahead and include it in your future revision!

That's really helpful, what you mentioned about the difference between when you've listed yourself and when you've used an agent. It's the kind of figure I was after - where does this person fall w/in the typical realm? And where should I aim as an investor (I'm aiming for your 96%, btw. haha)

Thanks again for adding to the discussion!

Karin Crompton · Answer

Hi @Ron Climer - thanks for chiming in! I completely agree w/everything you've said. My mother's been in the business almost 35 years, so I've seen her experience what you describe - sellers who think their house is worth more than it is, and lots of buyer-side stories as well.

I probably should have added that I'm talking primarily about flipping. What I'm getting at is, when you set your ARV, how close to it do you come? Along the same lines, when you list your rehab, how close does the sales price come to your asking price, on average?

So in the end, I think we're talking about a different animal than your typical list-and-sell. We don't have the emotional seller who may insist the Realtor list it for higher than they should. I'm looking at this as a straight business analysis - a rehabber who wants to analyze whether they're getting the comps right and studies track records. And this particular agent allegedly handles investment properties a lot.

Personally, I think when I look at it that way, 85% or 89% is low - even if you account for the notion that the intended ARV may very well have been 150k and they list a house at 155k or 160k so as to "settle" for that number during negotiations. But here's how I think it plays out for my investor friend: his Realtor's ARV on the current "deal" coming my way is 290k, and I can't for the life of me see it higher than 250k ... and what do you know, 250k is 86% of 290k - right in line w/that agent's stats. And that's a 40k difference on the bottom line! I just hope my investor friend figures this out (I can't really tell him this straight up - he won't hear it, for one thing - but I've shown him my comps when I've turned deals down, and he's watched me do a few of my own now. So time will tell, I guess.).

Anyway, I hope all of my babbling has made some sense! I'm attempting to be half the analyzer that J is one day. :-)

Bryan L. · Answer

@Karin DiMauro  - In my area, I think that most retail sells on the MLS occur at or near 95% - 98% of list price.  Now that's final list price.  It may have been listed higher initially and then reduced.  This is for retail sales only with houses in good condition.  Personally, I have bought houses for far greater discounts off the list price.

David Krulac · Answer

@Karin DiMauro

There are some agents that deliberately UNDER price listings.  One that I was familiar with was a REO agent.  His listings were always 20%+ below market price even when considering the work needed.  Sometimes they were 50% below market.  Not sure how the clients let him get away with that, but he did have great success.  There were always tons of offers on his listing and usually in the first week.  One property that I'm aware of, he had 40 written offers and sold the property for more than double the listing price in the first week.  Buyers would come out of the woodwork to bid on his listings.  It was typical that he would sell for over asking and sell quickly.  Perhaps there is a lesson there?

Karin Crompton · Answer

lol We list our own as well! I guess this scenario was me being nosy and anal rather than simply shrugging off what I thought were a series of bad comps. Well - nosy, anal, and concerned that my friend has a potential lemon on his team.

Robert Taylor · Answer

I guess that's why I prefer to be my own listing agent, that way I don't have to spend my time evaluating agents!

Karin Crompton · Answer

@Robert Taylor - good points all around. I'm guessing most agents don't routinely under-price homes as a business plan, though I could be wrong on that. But I agree, the % is just one part of an overall picture, w/a number of other factors to consider in order to fully evaluate performance.

In my particular case, this agent deals primarily w/investment properties rather than retail. I suspected that she was missing the mark on the comps she's been giving my investor friend but I wanted to see whether the numbers would back up my hunch - and they seem to. Additionally, her average DOM seems high, and she has a number of listings that have had to be "re-upped." And I did spend a lot of time scoping out the listings to get a sense of the story behind them - whether they were traditional retail or a rehab being put back on the market. So again, I agree - there's a lot to look at to get a well-rounded view of an agent's performance (and I haven't touched on everything by any means!).

Robert Taylor · Answer

Hi @Karin DiMauro , I understand what you're saying, although what about this scenario-I'm also a broker myself and although I usually just list my own properties, if and when I do take on other listings, where exactly does my best motivation lie? My motivation is to SELL the houses I list, thus getting me the commission check when they close.

Now, if someone comes to me with a house to sell that after I run my comps and do my research, I think should sell for between $300k and $320k for example, whether its an investor owned property or a regular homeowner, what should I price it at for the best benefit of the customer and myself? Lets assume that they want to sell to buy a bigger home in the same area, its not as if there's a job transfer out of town or some other situation where they have to sell and sell quickly. It is just a normal, "retail" sale. Should I list it at $320k and try to get them the maximum value out of their current home? Should I list it at $300k for a POSSIBLY quicker sale but less money? Or maybe I should "fudge" the truth a bit to them and tell them I think it should be listed at $275k! Sure, at $275k, it would probably sell real fast and we might even have multiple bidders overbidding, which would make me look GREAT in your % ratio! Let's say we do that and it ends up going for $280k, now I'm at 102% on your ratio, I sold the place in very few DOM, BUT I may have just screwed my sellers out of nearly $40 GRAND!!! $30 or $35k could've furnished much or all of their next house, depending on how extravagant their tastes are!

That's why I don't like that ratio, you're simply taking a snapshot of what really should be a much more detailed look and you're missing a lot of hidden details. If I'm simply out for making my commission on as many homes as possible, selling them as quickly as possible, I would "under price" all of my listings. I'd look great in your ratios and stats, but I'd be losing a LOT of sale proceeds for my sellers at the same time!

Karin Crompton · Answer

Oh, and @David Krulac - I meant to say thanks! That's really interesting about the mail you received, w/agents touting their percentage.

And I think that probably makes sense about the percentages varying depending on whether they are higher-priced, as those properties seem to have more variables. I'd be interested to know what others think about that. Is my theory correct, in that it can be trickier to nail down the ARV on a more expensive property? Or is the lower list-to-sales percentage on those properties perhaps attributable to something else going on - more owners in this demographic who demand their property be listed higher than it should, or agents who want to snag a bigger, home run of a commission, etc etc. (And I think I just changed my theory on the fly - I think it's a combination of all of the above!)

Stat Geek type of question: What's a good list-to-sales price %?

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