This is a great post from my colleague in Tennessee! The Absorption Rate is an important part of the market conditions...she is naming her area....but this formula works in all areas.
A question I often get asked? What is Absorption Rate and why is it important?
The simplest definition of absorption rate is the rate at which properties are sold in a given area. For example, there are currently 845 single-family homes for sale in Franklin TN. During December (the most recent month of closed data), 95 homes closed in Franklin.
If you take the current inventory of 845 homes and divide that by last month's closed sales (845/95), you get 8.9 months. That means if the current inventory stayed the same and the rate of closed sales remained the same, it would take 8.9 months to deplete or sell the existing homes.
A normal market would be considered between 5 - 6 months of inventory. If there is 1 - 4 months of inventory, it is considered a seller's market. If there is more than 7 months of inventory, then it is considered a buyer's market. Based on the most recent data, Franklin TN is in a buyer's market.
Remember, absorption rate is constantly changing as new homes come on the market and existing homes sell.
Why is it important to know the absorption rate?
If you are looking to sell your Franklin TN home the absorption rate will help you determine where you should price it for a quick sale. For example, say you are thinking about pricing your home at $450,000 and you calculated the absorption rate for homes priced between $450,000 - $500,000 was 14.3 months. But homes priced between $400,000 - $449,000 had an absorption rate of 5.3 months. If you were looking for a quick sale, you might price under $449,000. However, if you weren't in a hurry and were prepared to wait, you might price over $450,000.
If you are looking to buy a Franklin TN home, knowing absorption rate may help you negotiate a better deal. Let's say you are looking at two homes. One is in Sullivan Farms with an absorption rate of 6 months. While the other is located in Fieldstone Farms with an absorption rate of 12.1 months. You may decide to purchase the home in Fieldstone Farms because the seller may be more negotiable on his price because inventory is moving slower there.
Absorption rate is an important indicator of what is going on in your market and should not be overlooked. As in the examples above, the absorption rate can vary from city to city, neighborhood to neighborhood and even from one price range to another.
If you are looking to sell a Franklin TN home or buy a Franklin TN home, contact Tammie White for the most recent absorption rate to aid you in the sale or purchase of your home.
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Barbara Martino-Sliva, Realtor® at Dale Sorensen Real Estate Inc., VERO BEACH FLORIDA is the author of this blog and several other sites on the Internet. She has also been a guest speaker on an on-line radio program dealing with Florida and Vero Beach Real Estate and a columnist for the digital magazine FLORIDAYLIFESTYLEONLINE. Barbara is your Real Estate Connection in the Vero Beach area, and is always available to help you with your Real Estate needs. If you have decided that quality of life in VERO BEACH is worth seeing, call her anytime at 772-321-4484 or to search for homes visit: www.VeroPremierProperties.com and her Vero Beach Blog: www.VeroBeachRealEstateVoice.com.
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