There are many issues to consider as you head down the sometimes confusing path of putting your home on the market. Yes, items like price, condition, location, agent qualifications and plan to market are important items to consider. However there is one data point that should be understood so you can gain some level of understand as to how long you might be on the market. That data point is is “Absorption Rate”.
What is an Absorption Rate? This is simply an analysis that tells us how many homes are absorbed by the market on a monthly basis. This process will tell you exactly how much time it will take for the current real estate market to absorb your home. There are other data points which are important to consider, such as months of inventory. For example, in the greater Portland Oregon market, there was 6.2 months on inventory available in the month of August 2007. That means that if no more new listings came to the market at that point, in 6.2 months all listed homes would be sold. This is what is known as a balanced market and is neither a buyers or sellers market. Some sellers may feel different based on the activity they are seeing on thier home but these are the facts.
To further explain an absortion rate lets look at the Beaverton Oregon area of Washington County. We’ll use Beaverton High School, a price point of $450,000 to $500,000, bedrooms 3 or more, and homes built after 1995.
First, 100 homes in this criteria sold and closed in the past 12 months.
Second, we calculate an absorption rate by dividing the number of homes that sold in the past 12 months by 12. In our example the math works like this: 100/12 = 8.33 absorption rate.
Third, we search available listings and find there are 76 homes available for sale at this moment.
Fourth, we divide the number of available homes by the absorption rate. In our example that is 76/8.33(AR) = 9.12 months supply. This simply means there are 9.12 months supply of homes in the Beaverton High School area priced between $450,000 and $500,000, 3 bedrooms or more and built after 1995. Remember, the Portland Oregon RMLS statistic says there is 6.2 months of available inventory. However, when we analyze things a little deeper we find that this specific market segment may not enjoy a 6.2 month sales cycle.
Remember, there are many ways to segment the market to make this an interesting and useful data point to consider when setting your price. The key element is to NOT over price your home, especially in this market. A home that is clean, fresh, price correctly and marketed well will sell in a shorter time, netting the seller more money. If your real estate agent is not using this tool to explain the market activity to you, you may want to consider interviewing another agent.
For more on this or to find out the absorption rate for homes like yours, visit www.SteveSchwabGroup.com or email Steve at Steve@SteveSchwabGroup.com.
