Kristin's Blog: Seller's - How many homes does your neighborhood absorb each month?

Seller's - How many homes does your neighborhood absorb each month?

Calculating the absorption rate for an area will help you track trends and determine how you want to position your home to get it sold.  The information changes periodically as it is determined by number of homes sold as well as number of homes currently listed.

So, what is the absorption rate?  The number shows the rate at which the inventory of homes for sale are being sold in a particular area, thus, calling it that area's "absorption rate".  

Is the inventory increasing or shrinking?  How do I find out? Here's how to calculate the absorption rate: 

First, pick the area you want to determine the absorption rate for, then pick a time frame you want to look at, here's an example using 12 months:

Absorption rate in San Antonio, Texas

Using various months help you determine the trend, I like to look at 12 months, 6 months and 3 months.  Next, you:

1.  Find out how many homes have sold in that time frame (12/6/3)

2.  Divide the # of homes sold by the # of months used.

3.  Determine how many homes are currently available for sale.

4.  Divide the current active by the # of homes sold/month by the number. 

Based on the neighborhood used in the example above, we had about a 7.5 month supply of homes on the market at that time.  This helps us develop expectations of how quickly or how slowly a home will sale and how you should position your home to sell! 

Let's sum this up, if you have:

  • 1 to 4 months supply of homes - it's safe to say your neighborhood has a Seller's Market
  • 5 to 6 months supply of homes - pretty neutral market
  • More than 6 months supply of homes - Buyer's market
  • If you would like an agent to determine the absorption rate for your area, call me!

    Kristin Moran

    Specializing in San Antonio & surrounding cities
    -------------------------------
    RE/MAX Access - Realtor®/Owner

    KristinMoran@Remax.net 210.313.7397 www.SistersThatSell.com

    Buy a home from me, use the truck to move for free!

     

                    

    Comment balloon 44 commentsKristin Moran • June 10 2010 06:32PM

    Comments

    Great job of esplainin' absorption rate!  I am still trying to get the hang of going over it with my sellers...but it is SUCH a great tool!! :-)

    Posted by Jeanna Martinez (RE/MAX Access) over 7 years ago

    Good evening Kristin,

    You did an excellent job explaining how to calculate absorption rate! I always use this figure when talking to sellers..it's easy for them to understand.

    Posted by Dorie Dillard, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) over 7 years ago

    Hi Kristin -- Good stuff, I do AR and MHS for potential sellers, and I do it by different ways (sf, location, price range, community at large, neighborhood, etc.) it's really easy to do an export into Excel and when I have my template setup, it feeds everything auomatically.  That said, I then go on to tell sellers how they can minimize being in a strong buyer's market (if that's what the data shows).

    Posted by Chris Olsen, Broker Owner Cleveland Ohio Real Estate (Olsen Ziegler Realty) over 7 years ago

    I love using the absorption rate to show another aspect of a particular market segment. How you feeling the days? ;-)

    Posted by Russell Lewis, Broker,CLHMS,GRI (Realty Austin, Austin Texas Real Estate) over 7 years ago

    Wow you write it by hand like I do with my CMAs :)  My former broker told me I was "original", haha!  Absorption is VERY important to pricing. 

    Posted by Renée Burrows, Las Vegas Real Estate Broker - www.urLVhome.com (Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate) over 7 years ago

    Jeanna - thanks lady, I've been revamping my worksheet & wroking out the kinks to make it easier to understand/explain.

    thanks Dorie!  It's my newest favorite tool for listings, makes everything so CLEAR in my opinion rather than just actives/solds.

    Hi Chris - I would love a copy of that spreadsheet if you wouldn't mind sharing it?  Can you email it to me? kristin@kristinmoran.com

    Russell - me too!! My new favorite tool! I"ve been feeling good!  Got over the tiredness & now just waiting, it's a long wait!! 

    Hi Renee - ;).  Yes, yes, a tad old fashioned i suspect but I think it get's my point across. 

    Posted by Kristin Moran, San Antonio,TX - Real Estate - 210-313-7397 (Owner - RE/MAX Access - KristinMoran@Remax.net) over 7 years ago

    That was very educational for me. Thank you so much. This is yet another tool I can use as I go forward in my career. Anything that I can absorb from this board is going to make me a force to reckon with in my market area. Kristin, again thank you so much. That was awesome!!!

    Posted by James F. Chaney (Sorenson Realty, Inc.) over 7 years ago

    Kristin,  A woman after my own heart :)  I LIVE by absorption rates.  I have hired a coach for my new company and as a matter of fact we go over absorption rate pricing tomorrow!  Thanks for sharing this!

    Posted by Elizabeth Cooper-Golden, Huntsville AL MLS (Huntsville Alabama Real Estate, (@ Homes Realty Group)) over 7 years ago

    PS:  I'm emailing this to all of my agents, if you don't mind.  What a simple explanation!  Much better than mine, lol.

    Posted by Elizabeth Cooper-Golden, Huntsville AL MLS (Huntsville Alabama Real Estate, (@ Homes Realty Group)) over 7 years ago

    Great explanation, kristen. I've been doing that for certain areas in my market reports, and I think it's time for me to start incorporating it into my other areas as well.

    Posted by William James Walton Sr., Greater Waterbury Real Estate (WEICHERT, REALTORS® - Briotti Group) over 7 years ago

    Thanks for sharing that great information with potential sellers.  They need to know that. 

    Posted by Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239, Michigan homes for sale ~ yesmyrealtor@gmail.com (Keller Williams Commerce) over 7 years ago

    Kristin, this is great explanation. Straight to the point! And when you ask sellers, how fast would they like to sell (fast of course, but some can wait a bit longer, and others have to sell it yesterday, so to speak), you can always point out the absorption rate, plus how much inventory there is in each price bracket at the moment, and price accordingly. Hopefully :)

    Posted by Anna Tolstoy (Coldwell Banker Residential Brokerage) over 7 years ago

    Kristin, thanks for sharing that formula! That is awesome.

    Posted by Mike Mitchell, REALTOR (R) (Real Living Kee Realty) over 7 years ago

    Kristin, I love absorption rate. It really helps drill down why sellers need to price their homes competitively. We also customize it to the size, etc. of the home to make it more accurate. Even though we have 114 homes on the market where I live, because our price ranges go from $160,000 to $1,500,000, some price ranges are a bit scarce and more of a seller's market. Interesting...

    Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 7 years ago

    Perhaps this works in a large neighborhood with most homes alike but how does it work in a rural area with a variety of styles, prices etc.  It always annoyed me to have a relo company ask for our absorption rate in a small town.  I guess I was annoyed because I didn't know what they were talking about.  Your explanation helps.

    Posted by Barbara S. Duncan, CRS, GRI, e-PRO, Executive Broker, Searcy AR (RE/MAX Advantage) over 7 years ago

    I talk about absorption rate during the listing presentation.  I make sure I know that sellers understand the extent of the competition. Some areas have surprisingly good absorption rates - others not so much - so its on a case by case basis.

    Posted by Ruthmarie Hicks (Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605) over 7 years ago

    Well done... I think the absorption rate is a very interesting figure for both sellers and buyer to know.

    Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 7 years ago

    Absorption rates is Developper talk.

    Posted by Trey Langford, BuildIdaho.com (BuildIdaho.com) over 7 years ago

    Good info to present to the seller for sure!  And for some sellers,  the realization that there are enough homes on the market competing with them to take 6-8 months to "absorb" is a real eye opener about what they are up against trying to make sure their home does get "absorbed"!

    Posted by Nancy Conner, Olympia/Thurston County WA (Managing Broker - City Realty Inc) over 7 years ago

    We are in the midst of a strong seller's market in San Ramon CA, particularly in the newer areas of Windemere and Gale Ranch.

    Posted by Vickie Nagy, Delivering Desert Living, Year-Round Golf, Tennisl (Vickie Nagy, Broker Associate Alta Realty Group | BRE#01363932) over 7 years ago

    Kristin, that's a great and easy to understand explanation of "absorption rate" for sellers.  Currently our absroption rates doesn't bring joy to our sellers.  Inventory is far outpacing "absorption."

    Sue of Robin and Sue

    Posted by Robin Dampier REALTOR®, Hendersonville & Western NC Real Estate Source (Coldwell Banker King) over 7 years ago

    Kristin - Absorption rate is such an important thing for us to know as agents....without a firm grasp of this statistic, we run the risk of not recommending a good price point for our sellers.

     

    Thanks for going over it!  :)

    Posted by Coleen DeGroff, Haile Plantation Real Estate - Gainesville FL (eXp Realty) over 7 years ago

    Kristin, I've been a believer in absorption rates for years and always included it during my teaching days.  Your chart and explanation is crisp and clear.  Going to re-blog in hopes it is seen locally by some of the agents who constantly call and ask me to repeat the formula! Thanks.

    Posted by Mary Kay Hopkins, e-PRO,GRI,CRS (Mary Kay Hopkins, LLC e-PRO, GRI, CRS, CRB) over 7 years ago

    Kristen,

    Thanks for this. An interesting way of looking at it.

    Posted by Terry Chenier (Homelife Glenayre Realty) over 7 years ago

    The absorption rate (along with other indicators) is a tool that appraisers utilize to help determine the the subject market is stable, increasing or declining.  The absorption rate is a much better tool than the raw numbers of listings and sales, because it expresses the relationship between the two.

    Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) over 7 years ago

    Kristin, thank you very much for this info. I will be using it in my market. Thank you for the idea.

    Posted by Mark Montross, Listing and Buyer Specialist (Catamount Realty Group) over 7 years ago

    I love that you talked about doing this by neighborhood. I will give them information by city and by price point but neighborhood makes it even more relevant.  Thank you so much!

    Posted by Kathryn Maguire, Serving Chesapeake, Norfolk, VA Beach (GreatNorfolkHomes.com (757) 560-0881) over 7 years ago

    Kristin, excellent explanation of how to calculate absorption rates. Good information, thanks.

    Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA over 7 years ago

    Thank you for this post. It is a good idea to sit down with the seller and calculate out absorbtion rate right there with them.

    Posted by Erik Elsea (Erik Elsea-Jones & Co. Realty) over 7 years ago

    Good explanation. I use absorption rates all the time.  It's so important to drill down to the price point and location then calculate to get an accurate rate. 

    Posted by Barbara Altieri, REALTOR-Fairfield County CT Homes/Condos For Sale (RealtyQuest, Fairfield and New Haven County CT Real Estate) over 7 years ago

    Kristin,

    Great easy-to-explain tool that you have posted for sellers.  Thank-you for sharing!

    Posted by James Johnson (Austin Texas Homes, LLC) over 7 years ago

    This sure does make explaining the rate easy for sellers to comprehend! thanks!

    Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 7 years ago

    Pat Zaby has an absorption rate Excel Spreadsheet that autocalculates and does a 3,6, and 12 month rate. You could create this yourself but my unpaid endrosement is to check it out at www.patzaby.com. I don't go to a listing appointment without it. 

    Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) over 7 years ago

    This is a really good explanation of this method. Good Job!

    Posted by Eric Anderson, Fort Bragg Military Relocation Services, Fayetteville, NC Realtor (Prudential PenFed Realty (Fayetteville)) over 7 years ago

    Kristen....most excellent post.

    Thank you

    Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 7 years ago

    Kristen, Thanks for the formula.  I will be using this in some of my market posts. 

    Posted by Susan Brown (Keller Williams NE, Kingwood Texas (Humble & Atascocita too)) over 7 years ago

    Kristen, good explanation. That type of information makes it easier to talk with buyers or sellers.

    Posted by Ted Tyndall, FL Homes for Sale-Palencia, World Golf Village,Nocatee,St. Augustine (Davidson Realty Inc.) over 7 years ago

    Kristin: Great post. This is similar to the information I offer, too. It helps when trying to justify longer listing contracts for slow neighborhoods, too.

    Posted by Aaron Vaughn | Builder | Investor, If the deal makes sense, the cash will follow. (Conifer Homes) over 7 years ago

    This is great information Kristin!  Thank you for sharing it!  I hope all is going well with you and the little one btw :o)!

    Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) over 7 years ago

    You make this look so easy.

    Posted by Tammie White, www.FranklinHomesRealty.com or (615) 495-0752 (Franklin Homes Realty LLC) over 7 years ago

    Thank you so much for this post. This is something I just decided to do for a particular area and you made it so much easier for me. You must have read my mind!

    Posted by Bernadine Hunter, SFR, ACRE, "Finding Solution to Your Real Estate Needs" (Keller Williams Greater Columbus Realty) over 7 years ago

    Thanks, teacher! :o)

    Posted by Shirley Parks, Broker, 210-414-0966, San Antonio TX Real Estate (Sands Realty 210-414-0966) over 7 years ago

    Great explanation!  Very simple to use and easy to explain to potential sellers - also a good tool to have for pricing since they can see how long the average house in the neighborhood will be on the market.  Thanks for sharing!

    Posted by Jenn Neumann Deer, Surfside Beach Real Estate (RE/MAX Southern Shores) over 7 years ago
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    Posted by Mesi over 5 years ago

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