Absorption Rate >> A Must Added to Every CMA

By
Real Estate Agent with RE/MAX Advantage

Yesterday I commented on a post I read and mentioned I do a complete market analysis which includes average days on the market, average sales price and average selling price per square foot every two weeks for my listings.  In addition, I mentioned I add an "Absorption Rate" to every report.  The combination of the two has prompted many sellers to voluntarily reduce their asking price. 

Several AR members emailed me and wanted a copy of the absorption rate I use.  The one I use is below and I hope it is helpful.

Example of Absorption Rate application:

Your Right Price Analysis on a seller's home supports a Price Point of $539,000.

The sellers inform you that they want to list their property with you for $589,999.

To explain the effect of current market activity and validate the Price Point derived from your RPA, you create an Absorption Rate (AR) Analysis as follows:

First, determine the number of like-kind homes that have sold in the last 12-months at their expected price of $589,999.

8 Properties sold and closed in the last 12 months

Second, divide this number by 12 to determine the number of properties absorbed by the market on a monthly basis.

8 divided by 12 = .67 absorption rate

Third, you search the numbers of like-kind homes that are currently on the market (for sale) at their expected price of $589,999.

17 Properties are currently on the market

Fourth, divide this number by the absorption rate to determine how many months it will take to absorb what is currently for sale at their expected price of $589,999.

17 divided by .67(AR) = 25.37 month supply of homes on the market

This is powerful.  When sellers see there is a 25+ month supply of homes they become more realistic about pricing their  home correctly.  Add this to a bi-weekly CMA report.

Posted by

Native Idahoan and Boise Idaho Real Estate specialist serving Boise, Meridian Eagle, Nampa, Caldwell and the surrounding Treasure valley area of southwest Idaho. Specializing in residential, investment, land and commercial real estate. Search thousands of MLS listings at Boise Homes for sale and learn all about Idaho by visiting Search Idaho Homes

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Rainer
49,550
Portland Oregon Real Estate | Alecia Barnes - Broker
Portland, OR
George- Great information, really good. I have bookmarked for future reference. Thank you~
May 21, 2007 05:30 AM #57
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
You are welcome Alecia...good luck to you.
May 21, 2007 05:33 AM #58
Rainer
155,559
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Interesting stat.

Bob Mitchell

ValueList 

May 21, 2007 06:05 AM #59
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
Thanks Bob, have a great day
May 21, 2007 06:06 AM #60
Rainer
37,321
Robin Willis
Tucson Expert Agents LLC - Tucson, AZ
CDPE, SRES, Designated Broker
Great information!!  Thank you.
May 21, 2007 06:18 AM #61
Rainer
32,214
John Evarts
Classic Property Management of Santa Clarita - Santa Clarita, CA
Absolutely Awesome. And you explained it perferctly.
May 21, 2007 06:28 AM #62
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate

Robin - Thank you and you are very welcome

John - Thanks, I needed that compliment today...LOL!

May 21, 2007 06:42 AM #63
Rainer
235,888
Susie Roscoe
Signature Realty Associates - Brandon, FL
Real Estate Specialist | Brandon, FL
Great post...THANKS!
May 21, 2007 02:28 PM #64
Rainer
122,117
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
Great use of the absorption. Thank you so much for posting this. I could have used this on my first seller....
May 21, 2007 02:29 PM #65
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
You are welcome Susie...thanks again for stopping by and sharing your comments.
May 21, 2007 02:59 PM #66
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
Christy...you are welcome and good luck to you.
May 21, 2007 03:00 PM #67
Rainmaker
585,505
Neal Bloom
eXp Realty - Weston, FL
Realtor CRS-Weston FL Real Estate

George,

I added the absorption rates to my marketing letters but because there was little inventory turnover I only update it every 3-6 months so I have more information available. Good idea so the consumer can see the percentage of change.

May 22, 2007 08:08 AM #68
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
Thanks Neal...go for it my friend
May 22, 2007 08:11 AM #69
Rainer
54,734
Peggy Edwards
Future Home Realty - Westchase, FL
REALTOR - Green Designation, e-PRO, Tampa Bay, FL
George, what a helpful post.  I've bookmarked it.  Thanks much!
May 22, 2007 08:30 AM #70
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
You are very welcome Peggy....good luck to you and let me know if there is anything I can do to help you.
May 22, 2007 08:31 AM #71
Rainer
77,992
Aziz Abdur-Raoof
RE/MAX Rewards - Columbia, MD
Howard Co. Real Estate Scoop
gracias --I was a little late seeing your post!
Jun 30, 2007 11:23 AM #72
Rainer
77,008
Marcus Valdez
Berkshire Hathaway Rocky Mountain Realtors - Fort Collins, CO
Awesome post.  i am keeping that for life.  great.
Jun 30, 2007 11:40 AM #73
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate

Aziz - De Nada, have a great weekend

Marcus -  Good luck to you

Jun 30, 2007 11:49 AM #74
Rainer
225,598
Diane Bell, Hilton Head Real Estate, Bluffton
Charter 1 Real Estate, Hilton Head, Bluffton, SC - Hilton Head Island, SC

George,

WE routinely use this in our market place, especially now. 

Jun 30, 2007 02:25 PM #75
Rainer
184,434
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate
Diane...good for you
Jun 30, 2007 02:26 PM #76
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George Tallabas

Idaho Real Estate
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