What is Absorption Rate Pricing?
Absorption rate pricing is an old but, often over-looked method used by real estate professionals to calculate the value of your home. The calculations are based upon the principles of supply and demand. Because appraisers are now required to use Absorption Rate Pricing to determine your home’s value, it is critical that you understand how the process works.
There are only a certain number of homes that will sell in any market in any given period of time.For example, if 12 homes sold in the last 12 months in a given market, that means that the market will absorb 1 house per month on average. If there are 10 homes currently on the market, there is a 10 month supply.
· A 6-month supply is considered a balanced market.
· Less than 6-month supply is considered a sellers market.
· More than a 6-month supply is considered a buyers market.
To calculate Absorption rate, your Realtor® /appraiser will do the following:
1. Conduct a search for homes sold in the past 3, 6 and 12 month period, which are similar to your home based upon:
- location
- condition
- size
- features
- amenities
- price
From these numbers, the average sales per month will be calculated. This reflects the demand in the market.
2. Then, they will conduct a search for all active listings of homes on the market for sale which are similar to your home in: location, condition, size, features, amenities and price.
3. The monthly supply of homes on the market will then be calculated, resulting in the average number of home sales per month.
4. In addition, you will need to rank your home compared to the competition in the categories of: location, condition, size, features and amenities. This analysis will help determine the best asking price. If you’re in doubt, visit the competitive active listings to see that your home is positioned to sell within the timeframe you’ve allowed.
5. Based upon the positioning of your home versus the competition’s position and the monthly supply on the market, your Realtor® will be able to calculate the odds of selling your home in 30, 60 or 90 days.
Here is an example of a recent Absorption Rate Analysis that I shared with my clients–positioning is everything in today’s market!
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