What is Absorption Rate?

Posted By @ Aug 2nd 2011 4:59pm In: agent owner

Have you ever heard of Absorption Rate in a neighborhood or town? Sounds a little strange, uh?

Well, real estate agents use this absorption rate sometimes to tell approx how long it will take a house to sell.

What? Of course, there is no way to guarantee how long it will take a particular home to sell, but the absorption rate gives you an idea of how long to sell the total number of homes in that particular area.

For example:

Let's say that we have neighborhood "XYZ' which has 35 homes for sale currently and 26 homes have sold in the last 6 months. Then what the absorption rate for this neighborhood tells us is that it will take 8 months to sell all of the current inventory.

photo of teacher writing on a chalk board Simply take the # of homes sold in the last 6 months and divide by 6 --- this will give you the # sold for each month -- then take the # of homes currently for sale and divided by # sold for each month and there you have it.

So, 26 divided by 6 = 4.33 which reflects the # sold per month

Then 35 divided by 4.33 = 8.08 which is called the absorption rate and the length of time it will take "XYZ" neighborhood to sell of the current listings.

What good is this? It lets a potential seller realize that price and condition are critical if they want their home to sell in less time that absorption rate.

In the above example,

If you need to sell within the next 8 months, you need to price the property in the lower 50% of the price range for similar properties in order for it to sell in the next 8 months. To sell in the next 4 months it would have to be priced in the lower 25% of the competition.

These numbers are fictitious and the last paragraph, my opinion.

If you would like to know the absorption rate of your neighborhood, you can contact me. If you are outside of my area, I can find you a real estate agent to calculate this for you.

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