Absorption Rate Analysis

Tuesday, June 18, 2013

Carlisle Office Sales Meeting

Faith Michael Celebration• Date: Monday, June 24th

• Time: 5:00-7:00 PM• Place: Cumberland Golf Club

Food will be provided along with your first drink

to Laura Alwine

Market KnowledgeWhat is the average sale price of a home in Area 7 of the MLS this year?

A. $159,098

B. $164,002

C. $169,980

D. $171,147

Market KnowledgeWhat is the average number of days on the market of a home in Area 7 of the MLS this year?

A. 133

B. 111

C. 98

D. 92

Market KnowledgeWhat percentage increase in sales in Area 7 of the MLS have we experienced this year?

A. 2.9%

B. 12.5%

C. 16.2%

D. 19.8%

?Listing DilemmaNinety days ago you took a listing in _________ Township for $_______ which was within 5% of the value indicated in your CMA. You’ve completed all the marketing activities that a prudent real estate agent would perform but you’ve only had two showings on the property and no offers. Your seller is growing a little frustrated. What do you do?

Perform an Absorption Rate Analysis

Weaknesses of a traditional CMA

• Does not show inventory levels

• Does not show whether prices are falling or rising

Pricing Strategies Absorption Rate Analysis

- Anticipate the market to sell more listings

online information source for workplace development

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Two Important Definitions1. Inventory – Total number of

homes for sale within a defined market segment

2. Absorption Rate – Rate at which homes will sell within a given period of time

Absorption Rate Considerations

1. The number of houses sold and closed in a particular time period – three months is preferred

2. How many listings currently in the MLS

3. Do not count under contract or pending – only settled

Absorption rate formula

1. Total number of closed sales in a 3 month period divided 3 months equals the number of properties absorbed by the market monthly (Absorption rate)

2. Current listing inventory in the MLS divided by the monthly absorption rate equals how many months it will take to absorb what is currently for sale (Inventory span)

Absorption Rate ExampleA thorough examination of the market determines that there have been 300 closed sales in the last 3 month. At the present time, there are 600 residential homes on the market. What is the absorption rate?

1. 300 sales ÷ 3 months = 100 homes selling per month

2. 600 homes in inventory ÷ 100 homes selling per month =6 months of inventory on the market

Absorption Rate Summary6 months of inventory

More than 6 months of inventory results in a

downward pressure on prices

Buyer’s Market

Less than 6 months of inventory results in an

upward pressure on prices

Seller’s Market

Balanced Market

Absorption Rate AnalysisGeographic Area: Area 7

Three Month Moving Average – March through May 2013

0-$99.9K $100K-$124.9K

$125K-$149.9K

$150K-$174.9K

$175K-$199.9K

$200K-$249.9K

$250K-$299.9K

$300K-$399.9K

$400K+0

2

4

6

8

10

12

14

7.4 6.9 6.77.3

9.0

6.5

9.08.5

12.5

Seller’s MarketPrices are Increasing

Buyer’s MarketPrices are Decreasing

120

125

130

135

140

145

150

155

Days on MarketGeographic Area: Area 7Year-to-Date through May

2012 2013

152

133

-12.5%

290

300

310

320

330

340

350

360

Units SoldGeographic Area: Area 7Year-to-Date through May

2012 2013

313

352

+12.5%

$168,500

$169,000

$169,500

$170,000

$170,500

$171,000

$171,500

Average Sold PriceGeographic Area: Area 7Year-to-Date through May

2012 2013

$169,636

$171,147

+.9%

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