This post first appeared in the October edition of Cirios Trends: Getting to the Bottom of the Housing Market

Since this month’s zip code spotlight highlights the Sale Price vs. List price ratio and how it can provide insight into current activity within a defined geographic region, we have reprinted an earlier Cirios Trends piece on the subject:

In today’s real estate market, there is often an enormous difference between the listing price for a property and what it eventually sells for. When looking to buy a home, it is very important to keep this fact in mind. Examining sale price versus list price (SP/LP) ratios can help you compare one area to another, or one time period to another.

Let’s take a look at a previous zip code spotlight locale, Berkeley, CA 94703. In the graph below, you can see the running average of SP/LP for this area. Interestingly, the graph shows a few spikes corresponding to relative booms in Bay Area real estate. Currently, the ratio is hovering just above 100%, indicating that on average homes are selling just over their final listing prices.

Examining the same SP/LP ratio for the area of San Mateo, CA east of the 101 Freeway shows a similar, but noticeably different pattern. Areas with ratios over 100% are likely to be getting multiple offers on listed homes, indicating high demand. Areas with SP/LP ratios below 100% are likely to have relative low demand, with resulting long times on market. By looking at areas with ratios less than 100%, a prospective buyer can more effectively seek out good “deals.”

Looking at this information can also help in the bidding process. If you have chosen an area where properties are regularly selling for more than their listed price, you should be prepared to put in an offer that matches this trend. On the other hand, if a particular area has a SP/LP ratio below 100%, you can feel more confident that an offer below list will get accepted.

To be sure, just because an area has a SP/LP ratio below 100% doesn’t mean all houses should be considered cheap. Plenty of people, even after dramatic price declines, are over-paying for homes. Remember that a list price is what a seller “wants” for their home, and may or may not accurately represent what the market will bear.

And of course, the information presented here represents a broad stroke in looking at a particular area. Within any given region, different types of homes may have different SP/LP ratios depending on a variety of factors. By digging down into the nitty gritty details, the professionals at Cirios Real Estate can make sure you have all the data on your side when buying a house.