What is Absorption Rate and Why is it Important?

A question I often get asked? What is Absorption Rate and why is it important?

The simplest definition of absorption rate is the rate at which properties are sold in a given area. For example, there are currently 845 single-family homes for sale in Franklin TN. During December (the most recent month of closed data), 95 homes closed in Franklin.

If you take the current inventory of 845 homes and divide that by last month's closed sales (845/95), you get 8.9 months. That means if the current inventory stayed the same and the rate of closed sales remained the same, it would take 8.9 months to deplete or sell the existing homes.

A normal market would be considered between 5 - 6 months of inventory. If there is 1 - 4 months of inventory, it is considered a seller's market. If there is more than 7 months of inventory, then it is considered a buyer's market. Based on the most recent data, Franklin TN is in a buyer's market.

Remember, absorption rate is constantly changing as new homes come on the market and existing homes sell.

Why is it important to know the absorption rate?

If you are looking to sell your Franklin TN home the absorption rate will help you determine where you should price it for a quick sale. For example, say you are thinking about pricing your home at \$450,000 and you calculated the absorption rate for homes priced between \$450,000 - \$500,000 was 14.3 months. But homes priced between \$400,000 - \$449,000 had an absorption rate of 5.3 months. If you were looking for a quick sale, you might price under \$449,000. However, if you weren't in a hurry and were prepared to wait, you might price over \$450,000.

If you are looking to buy a Franklin TN home, knowing absorption rate may help you negotiate a better deal. Let's say you are looking at two homes. One is in Sullivan Farms with an absorption rate of 6 months. While the other is located in Fieldstone Farms with an absorption rate of 12.1 months. You may decide to purchase the home in Fieldstone Farms because the seller may be more negotiable on his price because inventory is moving slower there.

Absorption rate is an important indicator of what is going on in your market and should not be overlooked. As in the examples above, the absorption rate can vary from city to city, neighborhood to neighborhood and even from one price range to another.

If you are looking to sell a Franklin TN home or buy a Franklin TN home, contact Tammie White at (615) 495-0752 for the most recent absorption rate to aid you in the sale or purchase of your home.

Click on the houses to search for homes in Franklin TN, Brentwood TN, Spring Hill TN, Thompsons Station TN and Nolensville TN.

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Tammie White, Realtor® in Franklin TN
Cell Phone: (615)495-0752

This posting and the contents written here are the intellectual property and opinions of Tammie White of Benchmark Realty LLC

67 Comments on What is Absorption Rate and Why is it Important?

20 Most Recent Comments Displayed Show All

JAN
30
2011
 Great information written so consumers can understand it.   This statistic is often made harder to understand than it should be.   Congratulations on your feature! 8:16pm • #48
 Well put in your post today.  Thank you for getting this out to us today. I enjoyed the read.   Patricia/Seacoast NH & ME 8:21pm • #49
 Jason - I hope so too. Bryan - I'm with you on this. I'm surprised at the number of agents that don't even know how to calculate this number. Lola - Absolutely. Dianne - How do you do that? Maya - That's why I use it. Then they know ahead of time what are chances are of selling in their timeframe. Valerie - We are actually in a seller's market in some neighborhoods here. Of course, when I tell people that they look at me like I don't know what I'm talking about. I just point to the stats. That's the beauty of this calculation. Debe - I'm going to put this info on my website as well. It's definitely not something that buyers and sellers see on every site. I want to be the go to source in our area. Mary Ann - If they can't understand it, then it will be of no use to them. So we have to make them understand it. The best way to do that is give examples. Patricia - Thanks for stopping by. 8:38pm • #50
 OUr absorbtion rate here varies greatly depending on price range. It would be considered a buyer's market about about \$200,000 and a seller's market below that. Thanks for the explanation. 9:40pm • #51
 Kristi - It is important to explain to sellers that this number varies depending on the price and the area. 10:00pm • #52
 Tammie - This is a great, easy to follow explanation of absorption rate, and even better, explains why it's important. 11:02pm • #53
 Christine - Why have a number if you don't know it's application? 11:09pm • #54
JAN
31
2011
 Christine,  Great post.  I also give my clients the absorption rates.  Your post isan excellent explanation. 12:19am • #55
 Hi Tammie, wow, loved this. One of the first things my manager taught us years ago was how to figure out the absorption rate and ways to use it. You've detailed this excellently! 12:24am • #56
 Tammie Statistics are our friend.  It gives use a snapshot of what the market is doing. 1:14am • #57
 Tammie, nice blog 1:25am • #58
 Tammie, This is a very significant factor, it deals basically with supply and demand at the relevant time, not just historical figures. Brian 7:54am • #59
 Wonderful poat Tammie. Absorption rate is soooo important in a Sellers take on a market and you did such a grand job explaining. "0) 8:43am • #60
 Absorption rates are something I have used for years to demonstrate to Sellers the critical nature of pricing n ordered to be the next one "bought".  I first became acquainted with the concept from a Howard Brinton-Star Power produced tape set called "First Aid Kit in a Down Market" featuring Ron Garber, Erl Whitmore and Barbara Riccio, along with others, perhaps Tupper Briggs.  It has been a while since I have relistened to those tapes.  Later an updated version was produced, however there was nothing like the enlightenment rendered from these great agents back in the mid '90's. 9:58am • #61
 Hi Tammy -- I used absorption rates extensively, but I think their value is highly overrated.  It only takes one buyer for a home, and hitting the sweet spot with creating the right condition of the home that is meeting what buyers want, whether it's strong buyers market or not, coupled with proper pricing, almost always creates success.  The whole not improving the condition aspect and having a commodity on the market, versus a true in demand product, is where all the focus should be, and having 10+ months of housing supply (MHS) is more an indication (at least in my local market) that sellers are not providing what buyers are seeking, and oftentimes, it's the condition that's lacking, even if the price is competitive.  That said, some sellers don't have the financial capacity to make improvements and create a product that someone really wants to buy, and that's tough, and goes a long way to increasing the MHS.  I tell sellers, your market says 25months of housing supply, a very strong sellers market, but here is how we can most likely sell your home in 30-60 days if you do A...B...C. After all, it only takes one buyer. 10:13am • #62
 Thanks, great information.  You've helped an old mortgage dog learn something new today. 12:40pm • #63
 Great post. One forgets about this stat that is so important. I sayed up late last night to figure what's going on in my market. Thanks for the great reminder. Single Family Homes / inventory = 175 •·         January 2011 = 15.9 •·         December 2010 = 13.4 Townhomes / inventory = 162 •·         December 2010 = 18.0 •·         November 2010 = 20.2 Condo / inventory = 378 •·         December 2010 = 22.3 •·         November 2010 = 23 Single Family home \$1,000,000 plus = 73 •·         January 2011 = 18 •·         December 2010 = 24 12:54pm • #64
 Pam - Thanks for stopping by. Cindy - More brokers should do this. I'm surprised at the number of agents who don't know this. Tim - That's exactly what it does. Carla - Thanks. Brian - That's true. Martha - Thanks. It is important for sellers to know. Chris - While I do agree that it only takes one person to buy and that sometimes the reason a home doesn't sell is due to condition. Condition in comparison to those at that price. However, if the seller is unwilling to improve the condition, he might still be able to sell at a lower price. Absorption rate helps us explain this to our clients. None of this is an exact science. But it does help us explain how long their home could be on the market at a certain price. Bill - Glad to help. Charlie - You've got some pretty high numbers there. 1:16pm • #65
 Love it, Tammie. This is a great blog idea that I may revisit in the upcoming weeks. Absorption rate questions are always a part of the listing process! 1:24pm • #66
 Aaron - Thanks for stopping by. 2:45pm • #67

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Tammie White Realtor® Franklin TN Homes For Sale

Benchmark Realty, LLC (615) 495-0752 or www.TammieWhite.com

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Franklin TN Homes Real Estate Blog by Tammie White of Benchmark Realty LLC is a Great Place For Real Estate Agents and Potential Buyers and Sellers to get to know more about Franklin TN Homes as well as other parts of Williamson County.

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