Absorption Rates…. What are they?

Being a seller in today’s market does present some challenging conditions, but none that can’t be overcome with proper marketing strategies and price positioning.  While it is a given that home values have dropped in the past few years it is important to understand that homes at the lake are selling.  One of the tools that should be incorporated in establishing your price point is understanding the absorption rate for your area or average price for your particular type of lake home.  So what is the real estate absorption rate?

Much like a weathervane tells you the direction and intensity of the wind, the absorption rate of real estate is one method to determine how fast homes are selling.  This figure is essentially a tool to weigh supply and demand of the current housing inventory in our market.  We know that the lake area is not your normal level playing field, where housing in concerned, so it is important that comparables be chosen carefully.

The absorption rate provides the answer to this question: How many months will it take to sell all the comparable homes for sale at the current rate they are selling?  The higher the number, the more aggressive home sellers will have to be to get their home noticed and sold.

This figure is relatively easy to determine.  You only need to know two things: the total number of active comparable listings
(homes currently for sale) and the total number of homes that sold over a specific period of time.  If you can determine the number of sales in your area in the last 6 months, divide the total sales by 6 to arrive at the average number of sales per month.

This is how it works.  Let’s say that there are 120 active listings that compare or are in your particular area of the lake.  On average, 8 sell per month.  The absorption rate is 15 months.  If you are an average home seller priced at an average price, it will take 15 months for the market to absorb your home.  Remember, this number looks only at current inventory, it does not take into consideration any additional homes that will come on the market in the future.

If you have questions about absorption rate, comparables, or sold lake properties, please contact me at 573-216-8011.

Marc Hammack

REALTOR®, CDPE

Marc moved to the Lake of the Ozarks in the Spring of 2001, from the Kansas City area.  He has 10 years of experience in the personal finance industry, as a loan officer and over 20 years of experience as a carpenter and custom home builder.  His background has enabled him to have a good understanding of the value of properties at the lake, from both a financial and product quality aspect.

Advertisements

Tags: , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: