By: Jesse Clifton; Fairbanks Real Estate Broker
One of the most important yet often overlooked keys in setting an asking price for a home is the absorption rate. It's as important to pay attention to these numbers as it is to the most recent closed sales in a particular neighborhood.
Simply stated the absorption rate is the rate at which homes are selling. By dividing the number of available homes by the number of homes sold during the previous 30 days we're able to see how long it will take the market to absorb the current inventory of homes for sale.
Keep in mind this number is not static. The absorption rate changes every time a new listing hits the market or a home in escrow closes. The rates below are a snapshot of the market today.
Looking at what similar homes have sold for and making the requisite adjustments for age, size, amenities, etc. is critical to establishing market value. While the recent sales will give you the initial value, it's just as important to see how quickly the market is moving in order to solidify that value.
A Fairbanks home with a market value of $260,000 falls into the group of homes with an absorption rate of 9.1 months. At 5.4 months, homes in the $200,000 - $250,000 category are selling at a significantly faster pace.
Do the math. Assuming a typical mortgage payment of $2,200+/- (PITI) and average monthly utility costs of $300 (summer) and those additional four months of marketing time will cost you $10,000. Factor in average heating costs of $600 - $1,000 per month and it would be a very smart move to drop your initial asking price by $10,000 to move your home into a segment of the market that's selling much faster. After all time equals money and the longer a home sits on the market the more shop worn it becomes.
For sellers, the one caveat to the scenario above is that to get the most mileage out of these absorption rates, the home needs to be priced at market value as indicated by recent closed sales. If your market value is $250,000 but your asking price is $275,000 then you've easily doubled your marketing time and these numbers will be meaningless. Conversely if you’ve under priced your home then you can expect a much shorter marketing window.
0-150K 58 - 15 = 3.9
0-150K 31 - 3 = 10.3
Are you ready to sell and need to know the current market value of your home? Call us at 907-699-6024 or contact us online and request a comparative market analysis.
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