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.
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