How Understanding Absorption Rates Can Make you and Expert in Any Market

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How is the market? Real estate agents can’t escape this question, not from our family, friends, and of course, clients. What you should be asking is: “What's the absorption rate?". It sounds so “real-estatey”; a term you would only use if you were a tik-tok flip-bro. But it’s a critical term for buyers and sellers to understand – especially if you are considering buying or selling in the near or medium term.
 
Absorption rate refers to the rate at which available properties are sold in a specific area (town) over a specific time (30 days). Essentially, it is the number of months it would take for all the available properties to be sold if no new properties were to come on the market. A lower absorption rate (<5 months) indicates that properties are selling quickly and there is a strong demand for housing in the area, while a higher absorption (>5 months) rate suggests that properties are sitting on the market for longer and buyers have more power.
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How Absorption Effects Housing Value
 
As the absorption months fluctuate, the cost of the property rises and falls. Using the chart below, for example, if your town has an absorption rate of 2 months, that means the cost of property increases by 1.3% a month. That’s critical information!
 
Absorption rate refers to the rate at which available properties are sold in a specific area (town) over a specific time (30 days). Essentially, it is the number of months it would take for all the available properties to be sold if no new properties were to come on the market. A lower absorption rate (<5 months) indicates that properties are selling quickly and there is a strong demand for housing in the area, while a higher absorption (>5 months) rate suggests that properties are sitting on the market for longer and buyers have more power.
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How to Use the Absorption Rate for Buying and Selling

STEPS TO MAKING A WINNING OFFER

 
  1. Ignore the list price, its a marketing tool
  2. Ask for recent comps (past 6 months) for the neighborhood - prices are changing every week
  3. Understand the previous years market
  4. Ask the town’s current absorption rate - if it’s low then you know that prices are rising, so your offer needs to be higher than the current home comparables.

Pricing Property For Successful Sales

 
Essex County towns have a tradition of underpricing their properties. But there is a limit – I never want my clients to list their homes at a price they wouldn’t accept. However, as a seller, you want to attract multiple buyers for healthy competition. Knowing the previous year’s home sales and understanding the current absorption variable rate will guide you on where your home's value is.
 
Once we settle on the target price, we want to be sure that we attract as many buyers as possible, so we strategically price the house to expand the buyer pool. We want everyone in there: the overreachers, the bargain buyers, the overspenders, and most importantly, the savvy and qualified buyers who did their homework. The more interest the better!
 
Essentially, you want competition, and pricing your house within range but just below its value will simultaneously expand the interest pool while securing qualified offers. I find this method gives my sellers the least stressful experience with the best offer results.

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