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How Absorption Rate is figured

cheat sheet for figuring real estate absorption rate Knowing your area's Absorption Rate, helps to track trends. Understanding the market and where it is headed is part of our job as real estate professionals.

Absorption rate is NOT an exact science. Figuring it is based on the premise that one will be looking for a TREND. It is advised to consistently do the numbers each month, to be able to track a trend.

Getting Starting...

You need to know 2 figures.

1) How many listings are currently on the market?

2) How many listings sold last month?

You will be counting under-contract or pendings as listings, since they are not SOLD yet.

Multiple the number of solds last month by 12 (months).

Divided by the current listings equals # of Units that would sell each week.

Divide the # or units that should sell each week into the number available = absorption rate.

The Definition of Absorption Rate:

Number of weeks it takes to sell the current inventory at the present rate of sales.

Posted by Kristal Kraft ~Denver Real Estate~303-589-2022 on 11/14/2006 11:09 PM

Comments (68)

figuring absorption rate, real estate

Originally posted at: Denver Real Estate & Relocation: How Absorption Rate is figured

Post is included in group: Ninja Nation

68 Comments on How Absorption Rate is figured

NOV

2006

I've been actively watching the absorption rates in my market for a few years now. Very helpful. Sometimes it helps to remove yourself from the emotions of a listing (angst) and look at things objectively.

Great post for anyone who wants to master selling listings!

Missed you!

Hi Kristal...I am INTO TRENDS (been writing about trends and stats and intuition)... Ilike forward planning...I like to know the market and where the demand is...This is HOT info..Thanks.

Are these your actual market numbers or just an example? Looks like a buyers market!

In Wenatchee, Washington:
Under $200,000 Seller's market
$200K - $250K Bananced market
$250 and up Buyer's market

KK,

Buyers market here !!!!!

I like the jpg or gif :) great blog KK

Ray Saenz

NOV

2006

We're just over 40 weeks in Las Vegas, and that's not including Contingents and Pendings. Figuring it your way would just be too scary!

Learn something new!

Thanks

This is a great tool for dealing with expireds. Half the time, they were listed for less than the "Absorption" time frame- so when we re-list the home... it goes quickly!

I do absorption rates based on monthly figures rather than weekly - guess it depends on the market.

I figure our absorption rates using monthly figures as well, but either way, they're important numbers to know to convey to sellers and to just keep on top of what's going on in your market.

Great graphic!

Ann

I post the absorption rate on my site each month. I was going to just copy and paste the post onto my active rain blog. i wish I had then I would have gotten a star. Well actually I would not have gotten a star, but I should have done it anyway. :)

Thanks for the lesson. I can see may ways to use this information!

We break it down on a listing appointment to the particular price range.

It is an eye opener.

Beware! Some people may choose to wait for a bettet market, and not list at all.

Kristal,

Very timely. In the next several days, I was going to find and dust off my old calculation and start tracking it again.

You must have been reading my mind. Thanks,

Steve

Kristal,

Thank you so much for sharing. I now have a new project to share with my team! We Love forecasting!

We regularly track absorbtion rates here in Calgary. What is also interesting is when you track them for different communities or types of property (Condo vs Detached - NE vs SW etc). If anyone want a copy of a PowerPoint show let me know. K.

I would love Kevin's PPT... this is good stuff to share in my office!

Thanks!

What an interesting way to calculate.

Thanks for sharing.

You are definitely the QUEEN of blogging - local content, great advice, instructions, humor - ---you have it all!! Thanks so much Kristal,

ines

Sara (welcome back, did I say that yet?) It's hard to pull away from the emotions of selling a home when you are so into trying to help the seller accomplish their goal, but you must maintain the clear head of reason...if you don't, who will? BTW I missed you!

JaneAnne ~ Forward planning is great. Appraisers do backwards evaluation, we much look to the future for the trend.

Carol Williams ~ No they aren't the actual numbers, but they are close, in reality we have a 31.16 week absorption, overall. (did you list my house yet? the stone house that is...)

Ray ~ yes for the most part it is a buyers market. Unless the seller has a really, really nice house. We have a lot of crappy homes on the market right now.

John Novak ~ I guess you can figure it that way as long as you do it that way all the time. Las Vegas must have come to a halt. How's the job market?

Connie Pepenella ~ You are welcome. Thanks for stopping by!

Mariana Wagner of Pikes Peak County in Colorado Springs home of the USAF Academy and Fort Carson, The Broadmoor Hotel and the magnificent Garden of the Gods ~ Ask Angie Adams about the first lover, second spouse, third listing agent syndrome....do you know her at Sheilds (or whatever it's called these days.) Obviously you don't need to ask, you are doing it! Cool!

Sharon Simms ~ I used to do them monthly but my statistician chided me. Do you realize you lose 5 days by doing it that way! Oh my! That's almost a week! :)

Ann Cummings ~ Glad you like the graphic, it's my Picasso (handwriting!) I responded to Sharon Simms above about the weekly vs. monthly. I doubt that it matters, you are looking for a "trend". So consistency counts.

Teresa ~ My dear, your Gold Star is in the mail. A well earned one I might add!

Dena (of Pueblo West, the wonderful, beautiful and affordable community in Southern Colorado) ~ You are welcome. How's our little "plan" coming along, any bright ideas?

Ginger ~ That's the way to do it. Start at the top and work your way down. I find some areas are far better than the "average." AND you are so right about folks deciding to wait. If that's the case, great...who needs an unmotivated seller working against you too. The challenges of the market are difficult enough...

Steve ~ you don't need to dust off anything, I published it already!

Mykael Marinelli ~ Hope your team likes it as much as my Group does!

Kevin Clark in Calgary (due north of Denver!) I would love to have a copy of your power point show. We also track individual categories and subdivisions. That's the beauty of it, it's simple!

Lillianne Mida ~ You are welcome.

Susan Trombley ~ My pleasure...happy to be of assistance to you!Ines ~ thanks for your kind words. I love being a part of this community. It's everyone else that keeps me going...

Ines ~ thanks for your kind words. I love being a part of this community. It's everyone else that keeps me going...

NOV

2006

Kristal: I haven't listed YOUR house yet, but I found another stone house that is very cool, except for the power lines out front. I took a picture of it for you today. I'll probably post it on my other other blog. Will let you know when that's done. We have some very cool houses around town, but I won't let anyone else buy YOUR house.

And, I am working on my version of the rent-to-own article. I haven't forgotten. Just trying to make the time. Regardless of what NAR promotes, I do have another life! LOL

KK.... very interesting. I don't pay attention to this often, because my head is filled with so many other figures and numbers.

Your blog is easy to read and understand.... thumbs up.

Gooseberry

Carol ~ better photoshop the power lines if you want me to love it! Keep workin' on that article, I am waiting....

BTW ~ what is "a life?" ;)

Jeff ~ simple yes, powerful yes. I think your head if filled with more than numbers...blogs perhaps?

Kristal: I would never deceive you in a way like that! The good news is, our county has the third lowest power rates in the nation, at 2.5 cents KWH. This is right behind Douglas county and Grant county, both neighboring counties

Carol,

I'm sure you would not deceive me or anyone else!

I live in Douglas County right now!

NOV

2006

Informative post as always, but I'm wondering what absorbtion rates signify what markets?

At what levels do you have a seller's, balanced and buyer's market?

Jessica, we will never have a "balanced" market. When the listings start to go away, the sellers will be able to raise prices which will bring more sellers into the market. The pendulum swings evenly so there will always be a market for a buyer or a seller, just not necessarily at the same time.

This data is for the overall market. We have pockets where this does not apply at all. It's just a gauge.

NOV

2006

How very timely! I did a search for absorbtion rate calculator after listening to Joanne Fossland mention it for the fourth time and lo and behold I find an Activerain site first! Makes me feel good about joining last week!

Ginger ~ how cool and timely! Glad you are here! See Joanne Fossland is right! Did we ever doubt her??? Never!

NOV

2006

Krystal great tool. I have one reservation though..in my county we get from 200 to 300 new listings every 24 hours and last time I looked there was for the same period 39 sold and 40 Pending,My point is that to have a more accurate number one would have to add the difference between the new listings in an average week compare to the one sold. That is for my county any way in Lee....as every day more new listings are coming then sold, sometimes 5 times more. So that means I would have to add to the total number of listings on one perticular day the number of listings on an average day over the ones sold. these 35 weeks you mention sounds correctfor absorption but if you are like me and if there are more listed then sold then it will be more then 35 weeks. I am working on a 3 to 6 months trend and let you know if I have something abit more rosy!

STill I love that tool.Thanks.

LLoyd

NOV

2006

How do the new listings coming on the market factor in to the absorption rate? Or is that not part of the definition of this metric?

Susan, They don't. When I explain Absorption Rate, I say this is a picture of how long it will take to sell the home based on the current rate of sales and NO OTHER homes coming on the market. We know that is not realistic, but it's a benchmark. Usually the seller "gets it" and realizes the actual number will be longer.

NOV

2006

Kristal -- what happens to the calculation if nothing has sold in the prior month, or how about two months?

NOV

2006

Colleen,

If there are NO sales there is NO absorption.

Off hand I'd say you are up the creek without a paddle.

Sorry.

NOV

2006

This is very nice. I hadn't figured up sales that way, I love the new idea (to me)!

Sherri ~ Glad to be of assistance! We all learn something new everyday, if we are lucky!

NOV

2007

Hey Kristal,

This is good stuff!!! I will use it this weekend in my monthly area reports.

Thanks!

RJH

NOV

2007

Thank you for this information. I am really just starting to publish graphs of the market conditions in the North Georgia Mountains and absorption rate was one of the "biggies" I wanted to include.

I was taught to do this a little differently so I need to check out this method as well. When it's done at the right level it's a good indicator of what is trending...

NOV

2007

It's great having everyone share their Ninja.

I'll be in Paris on Christmas and Brussells for New Year.

Best Wishes to everyone for a joyous holiday season.

Rich

DEC

2007

Kristal - How do you figure in the "new on market" homes to this formula? What if more homes are giong on the market each month than selling ...?

Mariana ~ Absorption rate does not take into account "new on market" homes. It is set up on the premise at that point in time and if NO other homes come on the market it will take X# of weeks to absorb the current inventory.

This is usually a very strong effect on the consumer. They know the likelihood of nothing else coming on the market is not realistic.

DEC

2007

Good information. When I do absorption rates I do them a little differently. In addition to doing them by neighborhood I also do them by price range on a monthly basis. Check out Absorption Rate by Price Range.

Troy Trumm

FEB

2008

Kristal, nice & simple... Great post! Thanks!

MAR

2008

Thank you so much for sharing this information, what great info to share with sellers.

APR

2008

Great presentation on this subject. I use these statisticcs with both buyers and sellers. Se my post at: http://activerain.com/blogs/jpeters

APR

2008

Krystal, Thanks for the info. You explain it much better than any I have seen! I've printed this out and it's by my computer now. Thanks again! Elizabeth www.Huntsville-Realestate.com

MAY

2008

Thank you for this information, extremely helpful!!! I will be sharing these numbers with my "farm" on a regular basis.

MAY

2008

Thank you so much for sharing this. It is amazing how you can find an answer to nearly all your real estate questions here.

AUG

2008

I'm working on this for a client today. Thanks for the reminder!

AUG

2008

I just learned this the other day. Do you use a spead sheet or just compose it freehand.

Thank you for explaining it in detail.

Rich

If I have 82 active listins in an MLS area and 5 sold last month is my absorption rate 71.30 weeks. This would indicate a buyers Market, yes?

I hate to be a pain but you could do this for a year or 6 months and just change the number you divide it by, right?

SEP

2008

"I hate to be a pain but you could do this for a year or 6 months and just change the number you divide it by, right?"

Yes.

SEP

2008

Aloha from kauai, Hawaii. Thanks for your post. Buyers here in Princeville are still out there but very few . . . . Nevertheles, hope springs eternal and we expect a good resurgence of sales by Decemeber with prices dropping every day. Buyers are simply on the fence watching the market. How is the market in your Neck of the woods ? Thanks Much . . Aloha, James Pycha REMAX Kauai

SEP

2008

Questions: If I wanted to compare last months absorption rate to that of say 6 months ago, would I use the current listing inventory figure for both last months and 6 months ago calculations?

SEP

2008

Full explanation and Excel spreadsheet template at

http://www.zanmonroe.com/prod_library.htm

I am in Fayetteville,NC for the Nija Summitt with the Ninja's and it is GREAT!! Larry Kindall along with Zan Monroe and other Ninja leaders for 3 days. It is awesome!!

OCT

2008

Kristal -

Thanks for the simple and very useful information & presentation. It's good to get refreshers like this - I'll use your method starting today!

OCT

2008

We are arriving about 11.5 months for condos and 14 months for single family homes.

NOV

2008

Thanks for the post. I believe that this become more important than ever in this challenging market.

NOV

Great lesson

DEC

Kristal,

Thanks! I am going to give it a go! This is a good explantion so I should be able to get this figured out!

FEB

The way the real estate business has always shown current statistics is with the
'absorption rate' = (homes available)/(homes sold), during the past month. It
shows the average number of months a current home can be expected to be on the
market... if the price is right... and the market is normal.

Now they are quietly changing 'absorption rate' to mean (homes available)/(pending sales)

Many of these 'pending sales' fall through. Yet they are telling people 'Oh,
our absorbsion rates show homes in our area sell within 6 months of being
listed!" Also, on the MLS, every time a home gets recontracted to list, either
by the same or different office, the 'days on market' slips back to ZERO! Thus,
a home which has been actually on the market for 5 YEARS, will never show that,
but might say, 30 days on market!

These pending sales are NOT sold homes... the quiet lies are deafening.

MAR

Thank you for breaking down the absorption rate formula I actually read about it on another blog and searched AR to get a better description.

MAR

I appreciate your sharing the absorption rate formula. I feel it is a great tool to use to educate our sellers as well determinng current market trends. It places you ahead of your competition when you come in with this knowledge of the market.

MAR

Thank you, this is different from how I normally do it. I am gonna expose my blog reades to this method. Thanks.

SEP

I love the idea of checking absorbtion rate against expired listings, might be a great opportunity to pick up listings that just haven't had enough time on the market. Cari

SEP

Kris,

This is so typical. For some reason my brain locked up on me and I could not remember my absorbtion rate calculation and googled it. Guess what comes up YOUR BLOG! Ha so funny I should have known to come look in the Rain to begin with.

Thanks,

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