Absorption Rate Reveals Strategy for Pricing (Day 15)

By
Real Estate Agent with The Berkshire Group Realtors

Absorption Rate Reveals Strategy for Pricing

100 Real Estate and Relocation Tips in 100 Days

Market absorption rate reveals pricing information for both the buyer and the seller. In fact, the current absorption rate offen provides a clue as to where the market is going.

The absorption rate is the length of time it would take to sell the inventory of a given area at the current sales rate.

Here's how absorption rate is calculated:

  1. Take the number of homes currently on the market (Active inventory);
  2. Divide that figure by the number of homes sold last month: and
  3. The resulting figure is the absorption rate (based in months to sell)

As a Seller

The absorption rate is very important to know, since it tells something about how long it might take to sell the home. If the number of months if very low, it could also indicate the market is in a SELLER's market, therefore pricing the home at the higher end of the range might be will justified.

Conversely, if the number of months is high, the seller will need to price at the low end of the range (or even below the range) to realize a sale in a shorter period.

As Buyer100 Denver real estate and relocation tips in 100 days

Buyer's also need to be aware of the absorption rate. If the market is swinging into a time of low inventory, then they must realize bidding lower on a home just won't work. When intentory is low and buyers are prevalent chances are the buyer will be introduced to a situation where the home has multiple offers on it.

Conversely, if the absorption rate is very long, chances are the buyer will have time to successfully offer a lower price without fear of competing offers.

The real estate market is called such because it is a market. It changes with the amount of homes available.

With a changing market, the rules change as well.

Buyers and sellers who pay attention, will ultimately be the winners. It's just one more reason to work with a broker who understands the current market conditions and can assist in preparing a successfull bid or listing of your home.

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Ambassador
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Sheldon Neal
Bergen County, NJ - RE/MAX Real Estate Limited - Maywood, NJ
That British Agent Bergen County NJ

Nice Krystal ! - Thanks for the whiteboard calculation for absorption :o)

All the best


Sheldon

March 29, 2009 04:46 PM #1
Rainmaker
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Heather Chavez
Second Self Virtual Assistance - Caldwell, ID
Real Estate Virtual, Assistant (928) 692-3235

That's a great explanation of absorption rate, Kristal.  This makes it "Kristal" clear to any layman outside of the industry.  Sorry for the bad pun.  I couldn't help myself.

March 29, 2009 05:49 PM #2
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Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

Kristal, I had to bookmark this one so I can pull it up when I need it!  Great explanation.

March 29, 2009 07:32 PM #3
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Jeff Dowler CRS
Solutions Real Estate - Carlsbad, CA
Carlsbad CA Homes for Sale (760) 840-1360

KK - the absorption rate is such a critical piece of information to share with sellers. It varies by town, by market segment, and by type of property. Watching the absorption rate over time provides useful information about what is going on in the market. This was a most educational summary for agents AND sellers.

Jeff

March 29, 2009 10:40 PM #4
Rainmaker
412,187
Mesa, Arizona Real Estate Mesa Arizona Realtor
Teri Ellis at Homes Arizona Real Estate LLC - Mesa, AZ

Hey Kristal....well this was way over my head - before I read your post. I'm bookmarking it for sure so I can refer back to it....thanks for the tutorial. ;-)

Pepper

March 29, 2009 11:42 PM #5
Rainmaker
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Marlene Bridges
Village Real Estate Services, Inc. - Laguna Hills, CA
Laguna Homes|Laguna Condos|Laguna Real Estate

KK - Wow!  What a nice clear whiteboard presentation.  You just can't make it any plainer than that!

March 30, 2009 03:29 AM #6
Rainer
144,578
Mike Hendren
Mike Hendren Photography - Castle Pines North, CO

Thanks Kristal.  This is important information for ALL players in the real estate market and it's good to review and stay up-to-date with what's happening.

March 30, 2009 09:56 AM #7
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Kristal Kraft

Denver Real Estate - 303-589-2022
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