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    omarguti's Avatar
    omarguti Posts: 2, Reputation: 1
    New Member
    		  
    #1

    Dec 1, 2009, 02:53 PM
    Help with a statistical problem
    Trying to figure out correct method of calculating the following: SP/LP Ratio or sales price to list price ratio. When provided certain data for real estate transactions, lenders are asking for the ratio between the actual sale price & the listing price of the property. Example is a property that was listed at $100,000 sold for $95,000, thus its ratio is 95%. When you group together a number of sales in a certain area or neighborhood, lenders want a median ratio. Question is can one find the median sale price and the median listing price in neighborhood & calculate ratio or must the ratio be calculated for each individual property & find the median as the correct answer? Both ways always produce differenct answers & I just want to know which method would be correct.
    elscarta's Avatar
    elscarta Posts: 118, Reputation: 20
    Junior Member
    		  
    #2

    Dec 4, 2009, 08:33 AM
    You need to calculate each ratio and then pick the median.

    The reason for this is that the median listing price and the median selling price do not necessarily relate to the same house and therefore calculating their ratio is not meaningful.

    Even if they both are for the same house it is still not appropriate.

    For example let's assume that every house sold for more than its listing price except the median priced house which sold for less that its listed price.

    It is quite easy to see that it is possible for the median house's selling and listing price to both be the median of their respective lists. This gives a median ratio of less than 100% if you calculate it according to your first method even though all houses but one have a ratio of more than 100% !:eek:
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