Absorption Rate

How using market smarts can help you sell your home at a great price – NOW.

Real Estate is a field where numbers and emotions often compete for the buyer’s – and seller’s – attention. Large sums of money, combined with goals, aspirations, and memories, can make it extremely difficult for sellers to accurately gauge the market worth of their property.

A good agent can help sellers cut through the confusion by developing an accurate Competitive Market Analysis of their property. Along with the many statistics that are of interest to sellers, one stands out as a real sleeper.

It sounds a bit more like a test for paper towels than for selling property, but Absorption Rate is used religiously by appraisers to gauge the buying market’s reaction to the housing supply that is present in the real estate marketplace at any given point in time.

Knowing the rate at which competitive properties to your own are being purchased (or “absorbed”) is important for the purpose of “Marketing Time”. In other words, selling your home effectively depends upon knowing what price the market will bear within the time frame you are actually placing the property on the market.

At JS Walker Associates, our agents always provide the seller with a Absorption Rate Analysis as part of our Competitive Market Analysis service for all sellers.

Here’s an example of how this simple formula can work to the seller’s advantage:

John and Mary Jones own a house that they'd like to sell within four months so that they can take advantage of a buyer’s market in their new location and company incentives being provided by John’s employer.

Their agent provides them with a Competitive Market Analysis to give them an idea of a “range of pricing” for the sale of their house. Let’s say the range of pricing for John and Mary’s house is $220,000.00-$235,000.00. John and Mary are tempted to adopt the technique of asking for a sale price that is relatively high, assuming that with a little haggling the true value of their home will be reached by back and forth negotiation with the right buyer.

However, their real estate agent knows that, if they really want to sell quickly, they're better off analyzing the market frankly by calculating the absorption rate of their home at a given price point.

The Absorption Rate is calculated based upon the example as follows:

# of Houses Sold in Price Range and Location the Buyer of the Jones’ House Would Consider Over the Preceding Year-

90 Houses Sold

Divided by the Period Over Which These Houses Were Sold-

12 Months

Equals the “Absorption Rate” or 7.5 Houses Sold Per Month

Now, ascertain the # of Houses CURRENTLY ON THE MARKET in Price Range and Location the Jones’ Buyer Would Consider Buying Currently:

67 Houses On The Market

Divided by the Absorption Rate of 7.5

Equals # of Months Supply of Competing Housing Currently Available to the Jones’ Buyers or 8.93 or 9 Months Supply of Housing

As a result, the Joneses’ agent suggests that their house be placed on the market at $239,650 – a slightly lower price point where there is significantly less competition for the buying public's interest, along with a little room to negotiate with an interested buyer. After all, the Joneses desire a better buyer sooner at a higher list to sale ratio so that they can be where they want to be in a timely manner and take advantage of company incentives provided by John’s employer.

So, be market savvy . . . ask your agent for the Absorption Rate that applies to your house. At J.S. Walker, we give you all the information, so you can sell your property and move forward in your life . . . NOW.