Charles -- I think the next article will clarify some of this for you, and what you are pointing to is right on the money -- there is a strong correlation to Absorption Rate and "flexibility" of price negotiations with sellers.  I will detail that in the next article.

Marlene -- as you can see from the phrase I added in the post:  I have included a general reprint permission for the post itself.

I am flattered that instructors would deign to use my article in their classes.  I am pleased to be able to contribute to the betterment of our profession.

Athol Kay -- I would not recommend using an average for the sales numbers.  The statistic would lose some of it's meaning.  It is intended to give you a "snap shot" of current conditions.  A rolling average could give a false sense of stability in a dynamic market.  Your value to a client is in your ability to read the conditions as they are, so you can advise them accurately.  By averaging them, you might miss the signs of an impending crash or boom condition, until it is too late.  Remember, you want to "hit the market not chase it."  Using a rolling average by definition would require "chasing the market." 

Here's another teaser:  The next installment in this series will show you the value of the Market Absorption Rate with regard to pricing your clients' listings, and negotiating your clients' offers.  "Hitting the market vs Chasing the Market" could translate to many fewer days on the market.  Stay Tuned!

Thanks Jason. -- A walk in the park?  Perhaps if I were marketing a home that bordered the park, or perhaps if I were marketing the park itself, then being successful might include a "walk in the park" -- but I don't think it could ever be one.

Margaret -- thank you for stopping by to read it, and I hope the information helps you.

Lanre:  You are most welcome. 

Gina: By taking the extra time this analysis takes, you really do get a better understanding of your market, and thereby become of greater value to your clients.  If agents feel that becoming more valuable to clients is not worth their time, well...let me just say..."to each his own."

Phil -- Great question.  Homes that are For Sale By Owner can affect the overall statistics, but only slightly.  Here's why I say that:  Statistically, a large percentage (some say 70% some say 80%) of unrepresented sellers eventually engage a REALTOR to market their home.  Some simply change their mind, and withdraw their home from the market.  Some are successful and sell their home on their own, of course.  Those transactions eventually will be recorded on the public record, and will appear in the statistics that are gathered through that method.

When you evaluate the market conditions for your client, you are drawing your data from the MLS.  You are reporting on the activity as measured by the tools at hand, and your analysis will be based on the facts reported.  There is no real need to adjust your analysis for the presence of FSBOs, because the Supply vs Demand formula that Absorption Rate represents is measured by Inventory and Previous sales of that inventory. 

An analogy that might clarify this for some people:  School Performance.  Schools are rated by their student's abilities to pass certain tests.  Adjustments are not made to the statistics based on the testing of home-schooled children that might have otherwise attended that school.  You need to think of unrepresented sellers (FSBOs) in much the the same way.

I hope that answers your question.

Chip --

New Construction is a bit easier to address when doing absorption rate analysis than FSBOs, certainly.  Most MLS systems will allow you select whether or not to include new construction in your searches.  I suggest that for the most complete analysis, you look at the "big picture" and include new construction in your overall analysis. I say this for a couple of reasons:

1. Your buyers will likely look at new homes as well as resales.  For many buyers, if it is in their price range, new construction is preferred over resales.  As you advise your buyers, most will need to receive advice that covers the complete market.
2. Your sellers will be selling their home in a market that has new construction as well as resales.  Therefore, they need advice on how to position their home to compete in the total market, not just the resale market.

What I suggest is that after doing your analysis of a particular area's market, if your clients are specifically interested in purchasing new construction, then you then break out the new construction-specific absorption data.  It could arm you to negotiate the best price for them when they actually make an offer to purchase.  It will certainly help you and your client (and perhaps the builder you are negotiating with) understand the supply vs. demand side of the equation.

Because most buyers, (and all sellers) are searching or (competing) in the total market, your best bet is to analyze the market as it is, without adjustments.  In my experience, the practice of "adjusting" analyses to compensate for FSBOs or new construction is too often used to simply paint a brighter picture.  Your clients will be best served by accurate, thorough advice that is based solidly on the facts -- the complete set of facts.

Chip -- I feel your pain.  Just don't spend too much of your efforts with that type of breakdown.  The results might be interesting to you, but unless you can directly apply the analysis to your client, don't waste your time.  That is to say, knowing how fast new construction will sell out is only trivia to most buyers.  Unless you are doing an analysis on behalf of a builder, there will be little direct value to you. 

My advice:  Focus on the market knowledge that will actually make a difference to you and your clients.

Keisha -- Thanks for the supportive comment.

Donna -- I tend to judge an article not by whether or not it was featured, but by how long it continues to attract comments.  As you can see, this was posted in April, and is still getting commented on in late November.  To me, that is a greater measure of the topic's worth than the intitial wave of comments that a "feature" would have attracted.

Sallie -- you raise a good question.  And I admit that I had to wrap my brain around it for a bit before I could give you a valuable answer...

You suggest a ratio of demand divded by supply, as opposed to supply divided by demand.

Both methods essentially measure the relationship between supply and demand. 

Which then is the better method to use?

I think that the method I presented in the original post will be more useful to you, and more importantly, have a greater impact for your clients.  Showing a seller that there is a 10 month supply of similar properties in the price range he wants to get for his home that he needs to sell in 2 months will go a long way to helping him see the value of pricing it where it will get potential buyers' attention quickly.

It may be an issue of semantics, mixed with a bit of psychology, but I just think that seeing the statistic expressed as a number of months is easier to understand for most people -- at least for those of us without an MBA.  Some clients may be better suited to evaluating the rate as a percentage, however, so you need to make that decision on a case by case basis, I think.

Karen -- come back as often as you need to!

Steve -- You can also use the absorption rate data to help determine what might make a stale listing sell faster. For example:  I have a listing that is a 3 bedroom, 1 bath town home.  The absorption rate when I took the listing was 6.  Now it is closer to 16.  However, the absorption rate for 3 bedroom, 1.5 baths has remained around a 6.  This means that the buyers value that powder room very highly.  By looking at the data carefully, I can best advice my client.  They need to take the property off the market, add a powder room, and then re-list it in order to attract today's buyers.  They will be able to recoup some of the remodeling costs when they finally sell.

Latonia -- glad to hear it.  I am curious, was this article mentioned in the class, or did you find it on your own?

Joe -- Thanks, I will check out the post

Stephanie -- Thank you.  Invite your team to check out the "Technology Toolkit Training" group, also, as I am posting many other helpful tips there, as well.

Lanre -- Thanks for re-reading.  This post certainly has had a long conversation time.  It has been over a year and the comments keep comming.  I guess that is because of the timeless nature of the post.

Lisa -- I can't really take credit for the "timeliness" of the post.  It was originally posted over a year ago.  But that points to the nature of blogs, and what makes them so effective in reaching consumers.  If you write about a topic, and post it online, your article can be seen whenever the consumer does their search.  Anyway, I am glad you liked it, and I appreciate your kind comment. 

Since I had several requests to "reprint" this article, I have also activated the "reblog" feature...feel free to use it to post it on your ActiveRain outside blog, if you wish.

Allen -- I am glad you liked it.

Ray --  If you think it will be helpful to share with your clients, feel free to use the "re-blog" feature to add it to your blog.

Molly -- Once you understand a concept, it is important to share that understanding.  If you share what you know, you may find your understanding of it grows as well. 

Sharon -- My grandfather once said, "You should learn something new each day."  I am glad I could be the source of something new (and presumably useful) for you today.