What is Sold to Ask Ratio in Real Estate?
Whether you’re buying or selling a home, understanding basic real estate statistics such as sold to ask ratio can help you understand how to market is doing, and ultimately negotiate the best deal for you. In this article, I’ll go over what sold to ask ratio is and how it’s good for both home buyers and sellers.
Understanding Sold to Ask Ratio
Sold to ask ratio is simply calculating the percentage of list price that a home sells for. So for example, if you have a house that is listed for $700,000 and it sells for $665,000, the sold to ask ratio is 95%. Below is the calculation used:
Sold price divided by Asking price = Sold to ask %
The important thing to keep in mind is that no two homes are ever the same and the sold to ask ratio can change. Factors such as pricing strategy, marketing strategy and home staging, can all have an effect on the ratio that home sells for.
That’s why the best use of the real estate statistic sold to ask % is when it is looked at across the whole market. For example, below is a screen shot the Toronto Real Estate Board Market Watch Report. In it you can see the sold to ask ratio broken down by all homes of a particular style.
When we looked at the ratio on a macro level, it’s able to give us a birds eye view of what is going on in the real estate market.
How to Use Sold to Ask Ratio as a Home Buyer
As a home buyer, understanding how much homes are selling for versus their asking price will give you a good hint on how to approach negotiating an offer to purchase. So for example, if you see that homes are selling for 95% of asking price, it’s telling us that on average, sellers are willing to negotiate on price and that’s what’s happening.
On the flip side, if homes are selling for 103% of asking price then it’s a good indication that the market is a sellers market and there’s very little negotiation going on with price. There’s a good chance you’ll even encounter bidding wars and other competitive situations such as bully offers.
How to Use Sold to Ask Ratio as a Home Seller
Just like a home buyer, seller’s will get a good idea of how the market is doing. However, sold to ask ratio is a good indicator of how to come up with a pricing strategy. So for example, if homes are selling for 103% of asking, it’s telling us there’s a good chance of a bidding war if the home is priced properly. The key here is understanding what the market value is and then pricing accordingly.
So for example, if a home is worth $700,000 and they are selling for 103% on average, then a good strategy would be to list slightly below and take advantage of buyers willingness to compete. So in this example listing 1-2% below and looking to take advantage of that momentum.
They key here is that buyers behavior is often dictated by what’s going on in the market. So for example is a slower market, they may be less willing to enter bidding wars, meaning that strategy might not be as effective. If you’re looking to sell your home or understand what’s going on in the market don’t hesitate to contact us.
A final Word About Sold to Ask Ratio
The important thing to keep in mind when looking at selling percentage is that the statistic is best used on a large sample size, and also narrowed down to the style and general price range you’re dealing with. So comparing the sold to ask ratio of $500,000 starter home versus a luxury mansion won’t be that effective. Always look at any statistic you see in the right context.
I hope you enjoyed this article and video, be sure to check out these links to learn about other real estate statistics such as Average Days on Market and Understanding Absorption Rate.
Bye for now!
