What is the contract ratio or contract-to-listing ratio, as it’s also called? More to the point, how will it help you to know what the contract ratio is if you’re buying or selling a home in the Iowa City area?
The contract ratio is a way to look at the market from a different perspective than just looking at past sales, which is what we usually go by. The contract-to-listing ratio, as the name suggests, looks at the number of homes under contract compared to the total number of homes currently listed. The most helpful part of this way of looking at the market is that you’re looking what the market is doing right now and where it’s headed with future closings, not what it did last month. Of course it’s still good to know what the market was doing last month too – We can hardly figure out how the real estate market is trending if we don’t look at the bigger picture.
How to Calculate the Contract-to-Listing Ratio
So how exactly do you calculate the contract-to-listing ratio you ask? It’s really quite simple. You divide the number of homes under contract by the total number of homes listed. For example, I just ran a search on the Iowa City MLS. This calculation is for single family homes in North Liberty priced $200,000 – $250,000. 12 homes under contract / Total of 27 currently listed = 44% contract-to-listing ratio. That’s just slightly lower than the overall market in North Liberty, but that’s still plenty of activity in this price range for single family homes.
How Knowing the Contract Ratio Will Help You Understand the Market
Now you know what the contract ratio is and how to calculate it. What you don’t know yet is how it will help you understand the market better. Both the absorption rate and the contract ratio have the same effect in that regard. They both show how active the market is. Take my mid year market report for North Liberty last week for instance. The absorption rate was 2.6 months / 79 days on market when I wrote that report. The contract-to-listing ratio was still at a very high 47%. (Compared to 53% in May). That means 47% of the homes on the market were under contract in North Liberty. That’s almost half of the homes on the market under contract and waiting to close, (typically within the next 30 – 60 days) – The more homes there are under contract, the more active the market is.
In Coralville and Iowa City the contract-to-listing ratio was more around the 30% mark in my market reports last week. That’s still a good number of homes under contract, but not what we’d call “hot.” In these examples, sellers in North Liberty have reason to be pretty optimistic about a lower market time when they list their home for sale. Of course looking at market segments like price range or style of home would be more helpful for you as a seller in North Liberty or anywhere else the Iowa City area. That’s why it’s so important to hire an agent who will give you the data you need to understand the market better so you can position your house or condo correctly based on market conditions for your neighborhood when you list it for sale.
Even in this hot market buyers can also profit from more in depth analysis of the market. Particularly when it’s a question of looking at certain market segments. In an active market like North Liberty, you don’t need in depth analysis to know that a single family home in good condition and in the most popular price range, (priced right for the market), will sell quickly. What about in the upper price ranges? Or certain styles of homes? What’s selling and what’s not? A good buyer’s agent will help you assess the market by giving you the information you need to make smart decisions when buying a home. It’s easy to get swept along by media hype in this market, but ultimately we’re talking about buying a house here – A major financial transaction and lifestyle changing event – It’s ALWAYS a good idea to stop, think and analyze a situation before moving forward.
Ultimately the contract ratio, or contract-to-listing ratio is another tool in the toolbox for us to to use to gauge how the market is trending. When you buy or sell a home, data is your friend. The more you know and the more angles you can look at it, the smarter decisions you’ll be able to make. Hiring an agent who helps you understand the data and how it affects you as a buyer or seller is your next step. You don’t need a real estate agent to list a house on the MLS or in the case of buyers, to open doors. Hiring a professional who understands the Iowa City area market, the ins and outs of the home buying and home selling process and can help you navigate through it – That will be your key to a successful real estate transaction!