In yesterday's post the widening gap between buyer and seller expectations I wound things up talking about how the % of sale price to list price (%SP/LP) is calculated in the MLS.
The MLS calculates the %SP/LP based on the most recent list price, completely ignoring the original list price. And these days many homes have had price reductions, many of them multiple price reductions. So if a home is listed for $1,000,000, then reduced to $900,000, and reduced again to $850,000, and then sells for $820,000, the %SP/LP is calculated based on the $850,000 list price. So this house would show up as having sold for 96.4% of list price. And that sounds pretty darn good, like a normal market.
But what about the original $1.0m list price, and all the price reductions needed to get to 96.4%. Based on that the %SP/LP is 82%. Shouldn't that be a part this picture.
Not according to the MLS. And while you could argue that 96.4% is technically correct, it sure doesn't present a real world picture of what's happening in the market today and how aligned or misaligned buyer & seller expectations are.
The data for all the homes sold in the Tucson Foothills since January 1st indicates that on average those homes sold for 94.1% of list price. But just like in the example above, that 94.1% is only true after numerous price reductions on many of those homes.
So everyone, including Realtors®, home buyers and sellers, are thinking, 'oh, ok, homes are selling for 94% of list price, that's pretty good'. Wrong!
A few years ago when most homes were selling in two weeks or less, with no price reductions, the %SP/LP data was a more dependable gauge of the market. But times have changed, and today, with price reductions and multiple price reductions commonplace, the %SP/LP data gives a false-positive reading of market conditions.
And that doesn't help anyone.
For someone about to list their house for sale, seeing that homes are selling for 94.1% of list price, gives them a false-positive impression of the market too. If they knew what was really happening, that seller might be more inclined to really sharpen their pencil and price their home more competitively, from the start, and sell it quicker, without multiple price reductions.
It would benefit everyone, including buyers, sellers and Realtors®. And if everyone had a better understanding of the market, it might even help get things moving along.
A simple solution would be to have two different sale price to list price measurements.
The current one, which measures %SP/LP based on the most recent list price, and a second one which measures it based on the Original list price. Call it %SP/OLP, %Sale price to Original List Price.
Then we'd have the whole picture.
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