What is a Real Estate Absorption Rate and How Does It Apply to You?

What is a Real Estate Absorption Rate and How Does It Apply to You?

In real estate, absorption rate is basically the length of time it takes to sell a house that is listed on the market. The rate is mostly based off of the number of months it takes before the home is sold. Absorption rate is a concept that helps people in the real estate world determine prices and sales activities.

Let’s take a large, urban area for an example. In the past six months, there were 20,000 homes sold. Six months is the common baseline when it comes to home sales. The number of homes sold will now be divided by 6. The result will be 3,333. This number will then be used as a divisor to the number of homes listed on the market. If the number of homes listed for sale is 15,000, the outcome will now be 4.5. Therefore, there will be 4.5-month supply of homes for sale on the market.

It is easy mathematics but that does not make it less important. In order to anticipate home prices and market activities, the absorption rate history of a certain market will be necessary. Absorption rate is vital to real estate agents because agents regularly need to determine the value of the properties they are selling. It is also helpful for buyers to understand the state of demand and supply for properties that agents will be presenting to them. All in all, absorption rates aid in decision-making when it comes to buying a property.

Most potential property buyers are wise and do extensive research before going face-to-face with real estate agents. If you are a seller who cares less about the absorption rate of your market, you’re making a big mistake. To become a top producing realtor, you must be well-equipped with knowledge about absorption rates and market activities. Awareness of the absorption rate of a specific market will help your success.