Take 5
How Fast Will a House Sell? Understanding “Absorption Rate”
With Mike Lafferty 
TRT 3:14
Transcribed
     Mike Lafferty directly addresses camera:   Want to give your sellers solid information about when they should expect their house to sell? It's easy if you know the absorption rate in their neighborhood.
I'm Mike Lafferty, broker of The Lafferty Group in Vero Beach. Let's take five minutes to talk about how to calculate absorption rates, the benefits of knowing this stat and how to use it to your competitive advantage.
     First, what is absorption rate? Very simply, absorption rate is the number of months it takes to sell the currently listed homes in a given market. You can define a market by county, zip code, neighborhood or metropolitan statistical area. For example, if you're trying to figure out how long a house will sell in one specific community, you calculate it for that community. If you're looking for a more general area-wide stat, you calculate it based on broader market boundaries, such as county.
     Let's do the math for a particular community or subdivision over an eight month period. Checking the MLS, we find that 20 homes sold in the target community. 20 divided by 8 equals 2.5. The data tells me that 2.5 homes sell, or are absorbed, every month in the particular community. So, if you have 15 listings in that community and an absorption rate of 2.5, you have a 6-month supply of inventory. This will allow you to price any listing so it will sell ahead of the other listings in that community. If your community has multiple price ranges, you'll want to get more specific and calculate the absorption rate by price range. 
     Here are some ways you can use absorption rate data in your marketing:
Include it your listing presentations along with comparative market analyses. It will help the seller understand that a listing priced too high may sit on the market longer than the one priced in a different range. An agent in my office used absorption rate to help a seller price their home to sell quickly. Her data showed how fast homes in that neighborhood are being absorbed into the market. The absorption rate illustrated that listing at a higher price was not going to allow it to sell within their fast timeline. The seller listed it at the price the Realtor suggested and it was sold in a few weeks. The absorption rate data point revealed the price that would position the property ahead of comparable but overpriced homes in the same community. 
     Next, use absorption rate to determine if a farm area is worth your effort. Absorption rate will tell how long it will take for homes to sell and at what price point. Understanding a market will enable you to determine what it will take to be successful. 
     Very few Realtors are using absorption rate. Doing these calculations on a monthly or weekly basis allows you to understand the market you're in and could give you a competitive advantage. Personally, I think absorption rate is a much better indication of market conditions than a CMA can produce. A lot of times, agents realize that the month's supply is much higher than they thought. This allows you to understand the areas you're working and really become a true market expert.