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What is the Definition of Absorption Rate?

Is it important to consider absorption rate when considering selling your home? What is Absorption Rate?

During an evaluation of a property, I provide a link to absorption rateThe absorption rate is a report of the current inventory  in a particular area or city, and provides trends in regards to the number of homes per month are selling over the past one year. This is important information for both buyers and sellers, as you can monitor trends by area by month.

Absorption rates show monthly trends, and information about sales for past one month, three months, six months and twelve months.  Absorption rate is basically - the length of time it will take to sell all the active listings assuming that no new listings are added. This provides absorption rate. This is important information when listing your home for sale.

The graph below is an example of absorption rate.

The absorption rate is calculated by taking the active listings, not the back up or pending as those listings are not available. Factored in is the number of sold properties during the same time periods - one month, three months, six months, and twelve months to determine how many homes sold per month.

To calculate the absorption rate,  the active listings for that month are divided by the number of sold that month .If there are no sales, then you cannot calculate it for that month. One month does not generally establish a trend, however 3 months, 6 months and 12 months does establish a trend.

Less Than 5 Months is a Seller's Market
5 Months to 7 Months is a Stable Market
7 Months or more is a Buyer's Market

This is important information when you are pricing your home to sell, or you are making an offer on a Newport Beach home, or considering purchasing Newport Beach real estate.

If I can answer any questions about absorption rate, please contact me.

Originally posted at NewportBeachRealEstateCafe.com

Sharon Paxson REALTOR®
Compass
949.280.0681

 

 

 

 

 

 

 

 

 

Comment balloon 4 commentsSharon Paxson • July 25 2014 08:53PM
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