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Why "Average Sale Price" Statistics are Misleading

Why "Average Sale Price" Statistics are Misleading

One of the most common statistics used when gauging the strength of an area's real estate market is the average sale price of its homes, but looking into that figure more deeply reveals just how misleading it can be.

When listing a home for sale, most realtors establish a price for the home based on market comps of the area — taking into account what other houses sold for and how the home they are listing compares to those. That price is a gross sale price, however, and doesn't reflect what the home owner actually receives from the sale. The difference between the gross sale price and the amount with which the seller actually gets to walk away from closing is affected by a number of factors.

Determining Net Proceeds

Most people would be surprised to discover that home owners in hot U.S. real estate markets like California, Florida or Las Vegas often receive offers for their homes that actually exceed the asking price. That is because in almost all other U.S. cities, statistics suggest that a realtor usually secures an average sales price of only 92 to 95% of the listing price. In addition, a number of other costs must be subtracted from that figure as well:

  • 5 to 7% for realtor commission
  • 3% toward the buyer's closing costs (on average)
  • Realtor-recommended upgrades to make the house show better: new paint, carpet, minor landscaping, etc.

After all costs are figured in, the seller often walks away with only 75 to 85% of what the house "sold" for.

This should not reflect negatively on realtors by any means — their services are still very much in demand and are invaluable for many home owners — but the more people realize the difference between what their home sells for and what they actually net, the more the number selling their home through "non-traditional" methods continues to rise.

It's easy to find two houses on the same street in any neighborhood in the U.S. where the seller who sold their house for a higher price actually received less money at closing. If real estate prices were discussed in terms of net price to the seller rather than gross sales price, more home owners would discover that, for them, alternate channels for selling their home are more profitable than going through a realtor.

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