The absorption rate is one of the most overlooked statistics in the real estate market despite being a buzz word in the sector.
The absorption rate is one of the most overlooked statistics in the real estate market despite being a buzz word in the sector.
However, when considering the current status of the real estate market, the importance of the absorption rate, also known as the month’s inventory, cannot be overemphasized.
Below are discussions on what absorption rate means, how to calculate the rate, and how to make use of it when selling or buying a home.
What is the Absorption Rate?
Before considering how to take advantage of statistics, it is important to understand what the absorption rate is.
In other words, the statistic measures the number of houses that are sold in a given month compared to the number of homes that are available for sale. Therefore, you can use the statistic to figure out how long your property will take to find a buyer.
How is the Absorption Rate Calculated?
Calculating an absorption rate is simple; take the total number of homes sold in a month and divide that by the number of homes listed for sale within that month.
For instance, if 1000 homes are listed for sale in your city within a month period, but only 100 of them sold, the absorption rate will be 100 divided by 1000, which is 10 percent.
If everything remains constant, an absorption rate of 10% also implies that the supply of homes in the city will be exhausted in 10 months. In such a case, you may hear some real estate agents refer to this as ten months’ worth of inventory.
What is The Importance of Absorption Rate?
Whether you are buying or selling a home, calculating the absorption rate is an important step. As a seller, this statistic can tell you if it is the best time for you to list your property.
If the absorption rate is less than six, there is a shortage in the market, and it may be a good time for you to sell your home. On the other hand, if the absorption rate is more than six, there is a surplus in the market, and it may be harder for you to fetch a good price for your property.
It is never good for a home to stay on the market too long and an absorption rate will help you to see what the inventory of homes are in your price range and in similar homes.
Buyers can also make use of the absorption rate to determine the best time for them to make significant savings in the buying process.
For example, if the absorption rate is under six, the demand is high, and it is harder to bargain. Whereas, if the absorption rate is above six, the demand is low, and you have more power in the negotiations.;
The Bottom Line
Overall, it is apparent that the absorption rate is an important statistic to consider whether you want to sell or buy a home.
If you are a seller, it will help you know how hard or easy finding a buyer will be. If you are a buyer, the statistic can help you to decide the best time for you to bargain and get a house at the best price possible.
Your Agent
Many agents do not even know what an absorption rate is and how to calculate it.
Your agent George Tallabas, is an Associate Broker in Idaho that has been licensed in Idaho since February of 1980.
He owned his own office for over 10 years and has been with the RE/MAX Company since 1997.
He has helped numerous agents all over the country understand different systems that can help them take better care of their customers and clients.
