Personal Finance

How to Calculate the Ratio of a Selling Price to an Asking Price

Every home seller's dream is to close the sale quickly and get a final price that's at least as high as the asking price. Conversely, a home buyer wants to negotiate the figure down as far below the asking price as possible.

In numerical terms, a seller wants a sale-to-asking price ratio of something like 105%, while a buyer would prefer a ratio that's closer to 90%.

Exactly where the two parties meet on that spectrum depends on many variables, the biggest being overall market conditions. Recently, buyers have held good leverage in these negotiations: On average, they bought homes for 98% of the asking price in 2015, according to the National Association of Realtors.

So how do you calculate that ratio of selling price to asking price?

The calculation

Figuring out this ratio, also known as the sale-to-list ratio, is a simple three-step process:

  1. Divide the selling price by the asking price.
  2. Multiply the result by 100 to make it a percentage.

As an example, let's say the selling price is $289,000, the median selling price for a new home in the U.S. in December, 2015. Meanwhile, the the seller originally listed the home for $300,000. The calculation to figure out the sale-to-list ratio looks like this:

$289,000/$300,000 = 0.9630.963 x 100 = 96.3%.

In this case, the sale-to-list ratio is 96.3%.

Why it matters

That number gives us a good indication that the buyer held more leverage than the seller in this situation. If that weren't the case -- if, for example, multiple potential buyers had bid on the property -- it's likely that the sale price would have landed at or above the asking price. That scenario would have yielded a ratio of 100% or higher.

The ratio of selling price to asking price is a useful metric not only in home sales, but in any situation where value is determined by negotiations between buyers and sellers. How far the ratio deviates from 100% -- and in what direction - tells you important information about the motivations of the two parties, as well as the market dynamics surrounding their agreed-upon sale.

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The article How to Calculate the Ratio of a Selling Price to an Asking Price originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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