When Selling Your Home Make Sure You Know the Absorption Rate

When getting ready to sell your home most people know that they must clean, declutter but the most important factor...pricing.  To determine the price you and your Realtor need to look at the housing trend for your market.  That means looking at what homes like yours are selling for and how long it will take to sell. 

Every day you can pick up a paper or see a news feature on the state of the housing market.  The easiest way to understand current and future market condition is to monitor the real estate absorption rate. The real estate absorption rate is the rate at which the inventory of homes for sale is being sold.  You will see on many Realtor Comparative Market Analysis sheets the heading Days on Market, but that figure can easily be manipulated by removing and then relisting a property to "reset" the numbers.

The real estate absorption rate is a better gauge of how long it will take to sell your home, and how aggressive you will need to reach your timing goal to sell.

Mathematically, absorption rate is the measurement of current housing supply divided by the current rate of sales, expressed in months or weeks of supply.

A simpler way to express the definition of the real estate absorption rate is to say it is the number of months that the market will need for the foreseeable future. Thus, an absorption rate of 11 would mean that at our current rate of sales, we have all the homes for sale in the Greater Nashville area that the market needs for the next 11 months.

It is all about supply and demand. Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity.  That equilibrium of price and quantity in the housing market is determined by the absorption rate.

What does it mean to the seller? In Real Estate terms:

• Sellers Market: 1 to 4 months supply of homes
• Neutral Market: 5 to 6 months supply of homes
• Buyers Market: More than 6 months supply of homes

 In a sellers market the seller can set the price, do minimal staging and the house will sell.  In a neutral market the seller will need to look at the competitors pricing, and perform minimal staging.  In the buyers market, price aggressively, offer buyer incentives such as home warranties and perform high levels of staging and updating.

 How to calculate the absorption rate for your area?

In our example we will use Franklin TN, one of the most livable cities in the US according to recent polls.   We will calculate a monthly absorption rate and then a weekly rate. 

Figuring the Monthly Absorption Rate

As of May 2, 2011 there are 1053 listed for sale.  In the month of April 101 homes sold.  So  1053/101 = 10.42 months of inventory, or if no other properties came into the market it would take over 10 months to sell all the inventory currently listed.  

 Figuring the Weekly Absorption Rate

As of May 2, 2011 there are 1053 listed for sale.  In the month of April 101 homes sold. 
We take 101 (sold per month) x 12 (number of Months) = 1212 (rate that would sell in 12 months)

Then 1212 (number that would sell in 12 months)/52 (number of weeks in 12 months) =  23.30 (the number of homes that sell each week)

 1053 (current number on the market) /23.30 (number that sell per week) = 45 weeks (number of weeks it will take to sell all the inventory currently listed)

Greater Nashville and Surrounding Area Real Estate Specialist - Diane O and Friends

We at Diane O and Friends will assist you with a free 1 hour home staging consultation, a listing of the top home inspectors who can assist in a pre-listing inspection and of course of network of professionals to assist with any repairs.  And don't forget the home warranty.  Providing a home warranty gives your home the competitive advantage it needs in today's buyers market.

For more information about Diane O and Friends and our real estate services please fill out the online contact form or give us all call.
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Office: 615-371-1544
Diane Cell Phone: 615-406-2184
Mandy Cell Phone: 615-477-6959
Fax: 615-472-7931

 

Benchmark Realty 615-371-1544
Diane Osowiecki 615-406-2184  email me at diane@dianeo.us
Mandy Buchholz 615-477-6959  email me at mandybuchholztn@gmail.com