How Absorption Rate is figured

By
Real Estate Agent with The Berkshire Group Realtors
http://actvra.in/fDf

cheat sheet for figuring real estate absorption rateKnowing your area's Absorption Rate, helps to track trends.  Understanding the market and where it is headed is part of our job as real estate professionals.

Absorption rate is NOT an exact science.  Figuring it is based on the premise that one will be looking for a TREND.  It is advised to consistently do the numbers each month, to be able to track a trend.

Getting Starting...

You need to know 2 figures.

1) How many listings are currently on the market?

2) How many listings sold last month?

You will be counting under-contract or pendings as listings, since they are not SOLD yet.

Multiple the number of solds last month by 12 (months).

Divided by the current listings equals # of Units that would sell each week.

Divide the # or units that should sell each week into the number available = absorption rate.

The Definition of Absorption Rate:

Number of weeks it takes to sell the current inventory at the present rate of sales.

 

 

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Steve Steele

Good example of AR Kirstal.  I have to disagree with your statement about appraisers doing backwards evals. I would rather refer to our process as historical evaluation. Backwards may give some uneducated people that appraisers are "backwards" in their though process. Historical information is the foundation of every appraisal. Even when projecting into the future historical information is used. for example when determining marketing time, we use historical exposure time relavant to the estimated value in order to estimate future market time based on the same estimated value.

Steve the Appraiser

Sep 19, 2010 06:37 PM #78
Rainmaker
110,429
Nancy Brenner
Referral Associates of Georgia, Inc. - Roswell, GA
Roswell Georgia Real Estate Agent

I Googled 'real estate absorption rate definition' and your post was right smack dab at the top!  Great post - even 4 years later!

OK - reading the comments before mine (after I typed the above) I see that other agents area Googling the same thing.  haha

Oct 08, 2010 10:51 AM #79
Rainer
114,203
Shawn Rooker
Realty Austin - Austin, TX

Congrats, top of Google search!  This is a great resource!

Jan 03, 2011 02:33 PM #80
Ambassador
645,944
Courtney Cooper
All Seattle Homes for Sale: CooperJacobs.com - Seattle, WA
206-850-8841

funny   - I had a broker ask me to explain this yesterday and the very first thing that came into my mind was your post!    I don't think I commented before, but had to now since it obviously left an impression on me.

Feb 12, 2011 12:58 PM #81
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660,253
Kristal Kraft
The Berkshire Group Realtors - Denver, CO
Denver Real Estate - 303-589-2022

Glad to be of assistance Courtney!

kk

Feb 13, 2011 11:57 PM #82
Anonymous
Anonymous
Mo

Good graphic explanation Kristal

balanced to sellers market in Vancouver and Toronto based on the areas i work in.

Feb 17, 2011 02:21 AM #83
Anonymous
Anonymous
Drew Moore - Rogers AR Real Estate (Coldwell Banker Harris McHan
This is the most simple and easy to understand explanation of absorption rate I have ever found. Appreciate the information!
May 19, 2011 01:09 PM #84
Rainmaker
144,932
Patrizia "Trish" Giassa
Keller Williams Realty, North Central New Jersey - Chatham, NJ

Hello Kristal!  I miss you and your humor and photos!  I was looking for a reminder for calculating absorption rate and came upon yours!  Interestingly, in this market, the number of sales fluctuates depending on the time of year - I find some months we have many more sales than others (ie: we have more closings in July and August than any other times of the year!) Therefore I find using a yearly average, vs the monthly average, much more helpful.

The formula still works well!  Thanks for the help! xo

 

 

Oct 10, 2011 09:42 PM #85
Rainer
38,080
Bill Kruckenberger
McKee Properties - Bill@Cashiers.com - Cashiers, NC
Sapphire Valley & Cashiers North Carolina Expert

Thanks for this post way back when!

I was looking for an explanation of the published absorption rate in our market, and your providing the method of calculating explains it perfectly.

Still helping with your words years after written...how awesome!

Dec 13, 2011 02:20 PM #86
Ambassador
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Lynn B. Friedman
- - - Concierge Real Estate Services for YOU - - - Providing SERVICE for Sellers & Buyers is our BUSINESS - Atlanta, GA
REALTOR ATL BuckheadMidtownWestside 404.939.2727

Dear Kristal,

Just as Courtney Cooper (#84) said above, someone asked me to explain the meaning of absorption rate and the trusty AR search brought me right to you!

Thanks!
Have a happy day -
Lynn

Jan 07, 2012 06:54 PM #87
Rainmaker
572,623
Chris Smith
Re/Max Chay Realty Inc., Brokerage - New Tecumseth, ON
South Simcoe, Caledon, King, Orangeville Real Esta

You have managed to explain the concept so much more simply than many others who have tried to teach me this, thank you...

Jan 19, 2012 01:52 PM #88
Rainmaker
1,305,779
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

And this is for those that want to figure absorption rate on a weekly basis, which doesn't work in my local market.  And the calcuation is wrong IMHO if you are trying to figure out monthly absorption rates, which is what we want to know.  Weekly doesn't make a lot of sense,  We would like to know the month's supply and the trends are based on 1-5 months of inventory for seller 5-6 months stable, 6+ months buyers

Jan 19, 2012 08:14 PM #90
Rainmaker
38,498
Mark Wozniak
Keller Williams Realty - Centreville, VA
Northern Virginia Real Estate Expert

^^^ If you do the calculations in weeks and want to also know months, simply divide the result by 4.333 (which is the average number of weeks in a month).

In the example from the blog, you'd divide the 32.5 week absorption rate by 4.333, and you'd get 7.5 months.  You would have come to this same conclusion by simply taking the current number of listings on the market (30,000) and dividing by the previous month's closings (4,000).  Voila!  7.5 months for the absorption rate.  So, if all you care about is months, you can save a couple of steps in the calculations.

 

Jan 20, 2012 02:34 PM #91
Rainer
40,162
Jimmy Phan
KELLER WILLIAMS REALTY IN MOORESVILLES, NC - Hickory, NC
Phan real estate group in hickory

good deal Kristal

will bookmark this absolutely

jimmy phan

Jan 20, 2012 11:49 PM #92
Rainmaker
55,179
Peggy S. Harmeyer
RE/MAX Real EstateGroup.com - Altoona, IA
Licensed in the State of Iowa

Krystal, thank you for another fine blog. I use absorption rate often as it is greatgtool especially for the analytical seller.  It helps us determine more accurately the days on the market and how to price the home appropriately.  In Real Estate we must depend on many factor's as to determine the best way to market a home.  Mark thanks for the reminder of how to calculate for monthly vs. weekly.  Use this in 2012 and see if it helps you with your marketing to the seller.

Peggy

Jan 22, 2012 04:35 PM #93
Rainmaker
641,470
Stephanie/Bob The Ruiz/Miller Team
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Krystal, thanks for sharing.  I am a stats guy and that is one I was not sure how to calculate.

Jan 23, 2012 05:59 AM #94
Rainmaker
1,175,402
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566
This made it in the top ten views of the year. Many, many kudos to you!
Jan 24, 2012 08:15 AM #95
Rainmaker
617,754
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

This is very easy to follow steps.  Thank you for providing them.

Jan 25, 2012 02:44 PM #96
Rainer
4,771
Chris Huston
Keller Williams Premier Partners - Portland, OR

That's interesting. I'd like to re-post this, but not sure if that's okay? I'm new to AR and blogging. 

Thanks! 

May 03, 2012 05:25 PM #97
Rainer
47,465
Elva C. Benjamin
Miller & Associates Real Estate, LLC - Fairfield, PA
REALTOR, ABR, CDPE, SRES

Thanks so much.  This came in handy for verifying we were doing the calculations correctly for class. 

Nov 14, 2012 08:42 PM #98
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