No matter how much you would like to ignore it, your local economy affects your finances. This is readily apparent in the real estate industry. If you are getting ready to sell your house, it will behoove you to understand how the local absorption rate will affect how much you can ask for your home.
It’s also crucial to work with a real estate agent so can better list your home. Find out how to figure your area’s absorption rate and find the answers to other FAQ regarding this topic.
What is an absorption rate?
An absorption rate helps determine the rate at which available homes are sold in a specific market during a particular period. The absorption rate of an area helps those with stakes in the real estate industry determine the supply of homes in the market.
The supply of homes at a particular price point will help determine the asking price of your home. The absorption rate will also determine whether real estate investors will begin building new homes in your area to help meet the demand.
How is the absorption rate calculated?
Calculate the real estate absorption rate by dividing the average number of sales per month by the total number of available homes.
For example, if a suburb has 1,000 homes currently on the market, and buyers purchase 100 homes per month, the absorption rate is 10%. (100 divided by 1,000 = 10%). This means that buyers will purchase the supply of homes within ten months.
What is a good absorption rate in real estate?
If you are selling your home, you want the demand for your piece of property to be high. High demand usually results in higher prices. In real estate, an absorption rate above 20% usually signals a seller’s market.
If your town has a 1,000 homes currently on the market, and buyers are purchasing 200 per month, that probably means that your city is experiencing a seller’s market, as the supply of homes will be sold within only five months.
What does a negative absorption rate mean?
If the demand for real estate is less than the supply, a city has a negative absorption rate. During this time, the number of real estate listing increases faster than closed sales, and prices may drop.
What is a balanced real estate market?
Most would say that a balanced real estate market means there is a six-month supply of homes. Numbers over six mean that the market is good for buyers. If the number is under six, that means that the market is good for homeowners who are planning to sell.
How does the absorption rate influence real estate prices?
If you are working with a savvy real estate agent, they will take your current market’s absorption rate into account when setting an asking price for your home. Your agent may recommend that you increase the amount of your home if the market has a high absorption rate, or they may recommend that you time the sale of your home for a particular point in the year to take advantage of a time of low supply.
The market’s absorption rate can also determine whether or not an appraiser agrees with the asking price of a house. If you are currently living in a buyer’s market, your home may appraise for less than the amount that your buyer offered. If this happens, your buyer’s financing may not come through, and the sale may not occur.
How do I find my area’s absorption rate?
One sure-fire way to discover your area’s absorption rate is to work with an experienced, local agent. They have access to MLS data to give you an up-to-date and accurate absorption rate. They also have knowledge of local trends to predict if an absorption rate will last or is about to change.
A Clever Partner Agent is a great option to make sure your home is listed accurately given the absorption rate. Our Clever Partner Agents will also sell your home for a flat rate of $3,000 for any homes priced under $350,000 or 1% for homes over that price. Our full-service agents will market your home for the right price and will negotiate with your buyer on your behalf.
Contact with a local Clever Partner Agent today.