Absorption Cost Revisited

Real Estate Agent with Coldwell Banker Select

Absorption Cost is often presented as a way to differentiate yourself on presentations because not every agent will know how to calculate this.

confused guy

Basically, one grabs the number of home sales competitive with the subject property in a given time frame, divides by the number of months to get the home sales per month.  Let's say this number is six homes per month.

Next, take the current inventory of homes on the market that are competitive with the subject property and divide by the home sales per month to get the absorption rate or number of months it will take for the buyers to work through the current inventory.  So, let's say the inventory is 60 homes and home sales are six per month, the absorption rate is ten months.  For a more in depth look at aborption rate, take CRS 201 Listing Strategies, particularly Jackie Leavenworth.

So far so good, it's a good starting point and and interesting factoid.  Except for the fact that it is important to point out to the seller that the market doesn't work like that.  If the inventory is 60 homes, buyers are constantly skimming the best homes and best priced homes off the top.  So regardless of how many homes are on the market, the home needs to be in the top three or four homes in terms of attractiveness and pricing.  The best way to figure out where a seller currently stands is to have them put on their buyer hats and go and look at the competition and compare.  It's also a good way for the listing agent not to OWN the price.  You are providing the seller the evidence so that they know viscerally where to price the home and the consequence of not doing so. 

I am often asked on listing appointments, "How long do you think it will take for our house to sell in this market?"  The answer is simply, "It's up to you".  It's the best and for the seller an empowering answer.


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