What The Sale To List Ratio Tells Us About The Chicago Real Estate Market

Assuming you’re really hungry would you rather have 25% of a 14″ pizza or 38% of a 10″ pizza? A lot of realtors seem to think you’re better off with 38% of a 10″ pizza because 38% is more than 25%, right? That’s the problem with the sale to list ratio that I’ve often bitched about before. It doesn’t tell you that much about how much you’re actually getting. Nevertheless, looking at that ratio over time for the entire Chicago real estate market can provide us with a few insights – if you know what to look for.
The graph below shows the trend in the sale to list ratio for Chicago real estate by month. The first thing you need to understand is what the data is telling us and not telling us. Note that it’s calculated as a percentage of the original list price, which is key because if the price has been dropped a zillion times to get a property to sell the percentage of the last list price is kinda meaningless. Nevertheless, a lot of tricky realtors will report their sale to list ratios as a percentage of their last list price because it makes them look better. But the truth is out there!
Then, as I pointed out above, it tells us nothing about the direction of prices in Chicago. Remember, it’s a ratio so it can go up or down based upon either the numerator (selling price) or the denominator (list price) changing.

Chicago real estate average sale to list ratio
The average sale to list ratio for Chicago home sales is highly seasonal and has trended up over the last few years.

Finally, notice how attached homes (condos, townhomes) have pretty much always had a higher sale to list ratio than detached homes? Contrary to what you’d expect that does NOT mean that realtors are actually getting closer to their list price on condos. More likely, it’s probably just a result of the fact that in large condo buildings it’s quite common to list the home without the parking space(s) and to list the parking space separately. So a $400,000 condo with a $25,000 parking space might sell for $410,000 and count as a 102.5% sale to list ratio when in fact it should be 96.5%.
So what can we learn from this data? Yeah, the ratio has trended up over the last few years but, as the dead horse will confess, that doesn’t mean that prices have trended up. All we know from this data is that list prices and sale prices have converged. Other data do tell us that sale prices have drifted up in this time frame but at the same time real estate agents and their sellers became more realistic as properties weren’t selling fast enough so they lowered their list prices. That shortened the market times and the Chicago real estate market became more balanced.
The other big takeaway from this data is how seasonal it is. The ratio peaks fairly consistently in May – July and dips to a low in November – January. That’s because of the supply demand/ balance. Inventory is tighter during the May – July timeframe relative to the number of buyers in the market but much higher on a relative basis in November – January. In other words, if you want to sell your home during the late fall/ early winter you need to be a lot more negotiable. Not to mention that the sellers on the market at that time of year are, by definition, a bit more desperate to sell since the ones that can wait will wait until Spring.
Note that this conclusion is consistent with the Case Shiller home price index data which shows a similar seasonal pattern. I’ve used that data before (I probably need to update the analysis) to recommend when is the best time to buy or sell a home in the Chicago area.


As a side note…sometimes we get buyers – let’s call them Bob – who ask, before they write an offer, what the average sale to list ratio is in the area. Please don’t be like Bob. The average sale to list ratio provides no insight into what you should offer on a home. If it did then it would be in every seller’s best interest to price their home $1 MM above what it’s worth so that they could get an extra $960K (for example) for it. All that matters is what the home is worth to you and to others.
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Gary Lucido is the President of Lucid Realty, the Chicago area’s full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider’s view of the seamy underbelly of the real estate industry you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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