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Absorption Rate >> A Must Added to Every CMA

Yesterday I commented on a post I read and mentioned I do a complete market analysis which includes average days on the market, average sales price and average selling price per square foot every two weeks for my listings.  In addition, I mentioned I add an "Absorption Rate" to every report.  The combination of the two has prompted many sellers to voluntarily reduce their asking price. 

Several AR members emailed me and wanted a copy of the absorption rate I use.  The one I use is below and I hope it is helpful.

Example of Absorption Rate application:

Your Right Price Analysis on a seller's home supports a Price Point of $539,000.

The sellers inform you that they want to list their property with you for $589,999.

To explain the effect of current market activity and validate the Price Point derived from your RPA, you create an Absorption Rate (AR) Analysis as follows:

First, determine the number of like-kind homes that have sold in the last 12-months at their expected price of $589,999.

8 Properties sold and closed in the last 12 months

Second, divide this number by 12 to determine the number of properties absorbed by the market on a monthly basis.

8 divided by 12 = .67 absorption rate

Third, you search the numbers of like-kind homes that are currently on the market (for sale) at their expected price of $589,999.

17 Properties are currently on the market

Fourth, divide this number by the absorption rate to determine how many months it will take to absorb what is currently for sale at their expected price of $589,999.

17 divided by .67(AR) = 25.37 month supply of homes on the market

This is powerful.  When sellers see there is a 25+ month supply of homes they become more realistic about pricing their  home correctly.  Add this to a bi-weekly CMA report.

Native Idahoan and Boise Idaho Real Estate specialist serving Boise, Meridian Eagle, Nampa, Caldwell and the surrounding Treasure valley area of southwest Idaho. Specializing in residential, investment, land and commercial real estate. Search thousands of MLS listings at Boise Homes for sale and learn all about Idaho by visiting Search Idaho Homes

Comment balloon 76 commentsGeorge Tallabas • May 20 2007 06:04PM

Comments

I agee with you!  The absorption rate is overlooked in CMAs and is a must.   Very good useful post.

Wayne - Columbus Ga Real Estate

Posted by Wayne Long, Homes for Sale In Fort Benning Ga (Columbus Ga Real Estate, LLC - Fort Benning - Phenix City ) over 11 years ago
Thank you Wayne....Have a great week
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
There you go again, George.  That is a great tip, even when you're just giving a listing update on market conditions.  STAR!
Posted by Chris Griffith, Bonita Springs Listing Agent (Downing-Frye Realty, Bonita Springs, FL) over 11 years ago

This is a great thing to add to CMAs.  Very informative for the sellers. 

We work frequently with condos, and have an excess of them here.  We use the absorption rate all the time.  It helps show sellers and developers how much inventory is on the market, and then they can judge how aggressive they want to be with their incentives.

Posted by Jim & Maria Hart, Charleston, SC Real Estate (Brand Name Real Estate) over 11 years ago
Fabulous Tip George. I will make sure I include that from now on. I could have used it several times this last month on a few unrealistic sellers.
Posted by Herb Hamilton, Real Estate Broker ,CDPE, Downtown Portland (RE/MAX Preferred Inc. Realtors) over 11 years ago
Thank you very much Queen Elizabeth!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Jim & Maria...good for you.  Have a great week
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Herb...good luck to you my friend
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

George,

It is amazing how the absorption rate can make a seller see the whole picture! You can tell them everything included in the CMA and get to the absorption rate and suddenly, the light goes on!

Posted by Paula Henry, Realtor - Indianapolis Real Estate - 317-605-4174 (Home to Indy Team @ HomeSmart Realty Group) over 11 years ago

This is a very important tool. But I don't use the 12 month number as heavily as you do- not with the fluctuations in my market are this year. I do point out the year-view absorption rate, but I balance it by reviewing with them the month by month sales trends, and then discuss the more recent absorption activity- say 6 month or 3 month.

I do track the general market area sales stats and use these to point out the overall trends as well.

But honestly, all these numbers really frazzle the nerves of so many clients LOL

Posted by Sarah Nopp over 11 years ago
George, great point that we often forget. We have to tailor our ideas to the market conditions, great post. 
Posted by Eric Bouler, Listening to your Needs ( Gardner Realtors, Licensed in La.) over 11 years ago

What a great idea.  You are smarter than the average bear. 

I did an analysis for a town home today where the comps were from $189,000 to $229,000.  Not that it matters, nothing is selling in the community. 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 11 years ago
Thanks for the info. I expect I might use this in the CMA's I do to see what difference it will make. Thanks again. Mike C
Posted by Mother Lode, Real Estate Master (Real Living Sugar Pine Realty) over 11 years ago

Great post.  This will definitely open lots of sellers eyes when trying to price their home.  I will use this tool to my advantage.  Once again thanks alot.

Posted by Freddie Castaneda, San Jacinto Valley Real Estate (Beechwood Realty) over 11 years ago
Great, Great Information. I just put together my new CMA report and I will add this awesome tool. Thanks.
Posted by Christina Williams. REALTOR® TN property search & local insights (First Realty Company) over 11 years ago
Thank you George.  I'm always looking for great ideas to implement into my business.
Posted by Julie Neerings~Lifting Hearts ♥ Building Dreams~ (Agent Referral) over 11 years ago
Thanks so much for this information and math formula!  I also think it will be good to give sellers on a monthly basis so they can see what is happening in the market.  Sherry
Posted by Carol Spengel, Wheaton IL (Prudential Rubloff ) over 11 years ago
Yes it really works!  I've used this for years.  It gets really interesting especially when you tell a seller given ght current homes on the market and only 3 pending sale we have an absorption rate of 6 years in your price range! 
Posted by Jim Crawford, Jim Crawford Atlanta Best Listing Agents & REALTOR (Crye-Leike REALTORS®) over 11 years ago

Want to make it more powerful? Track it on an ongoing basis so you can provide them a chart showing the trend for the absorption rate. I've used such a line graph in my last two presentations and it's helped with pricing in both cases.

I'm coming up on the year mark for tracking absorption rate on a rolling 30-day basis here in the Phoenix area. The full results are on my Dalton's Arizona Homes Blog and I've posted them on Active Rain from time to time as well.

Posted by Jonathan Dalton (Realty ONE Group) over 11 years ago
Love the idea.  I do something similar but that is really a great way to go about it.  Ill have to impliment it into my CMA's from now on!
Posted by Liz Landry (The Landry Team-Keller Williams Realty) over 11 years ago
Absorption rate is very important especially if ones breaks it down by submarket or even subdivision.  It provides an extremely clear picture on how that specific market is doing!
Posted by Kaushik Sirkar (Call Realty, Inc.) over 11 years ago

Very informative. A much needed "talking point."

Thanks, George

Posted by Gary L. Waters Broker Associate, Bucci Realty, Fifteen Years Experience in Brevard County (Bucci Realty, Inc.) over 11 years ago
Great advice George.  Now I just have to figure out how to explain all of the numbers so people don't get the glazed over/confused look.  Going on a listing presentation this week, so I will give it a try.
Posted by Amy Bergquist, ABR, GRI (RE/MAX Premier, REALTORS) over 11 years ago

Paula - Yes it is a very important tool my friend

Sarah - Use it as you wish.  I too have used the 3 or 6 month version

Eric - Thank you and good luck to you

Lenn - Thanks for the compliment my friend - I needed that...LOL

Mike or Emmett? - Thanks and good luck

Freddie - You are very welcome and good luck

Christina - You are very welcome and good luck

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

Julie - You are very welcome

Sherry - You are very welcome....I hope it helps you

Jim - Thank you my friend....good to hear from you

Jonathan - I do convert mine to a chart and it is powerful.  I just wanted members to know the basic formula

Liz - Good luck with it

Kaushik - Yes it is very powerful

Gary - You are very welcome

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

Great job. Thanks for resurrecting it from the cobwebs of my mind. So I don't forget again I put it into an Excel file so all I have to do is punch in the numbers and it can do the figures for me. I have an appointment Tuesday with a client. I will use it then.

Posted by Doug Trudeau over 11 years ago
Doug - I'm glad it will help you and good luck to you
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
I use the absorption rate, have been doing so for the past 4 years and it makes a world of difference in explaining things.  To the statistically-inclined clients, they're thirsty for this kind of information.  For the ones who glaze over, my dialogue is that the absorption rate is simply the length of the line at the grocery store.  And if you have one gallon of milk (i.e. priced right and staged properly), you can cut the line.  If you look like everyone else or have a huge piled up cart (overpriced), feel free to wait as long as it takes. =)
Posted by Leigh Brown, CEO, Dream Maker - Charlotte, NC (Leigh Brown & Associates, RE/MAX Executive) over 11 years ago
Thanks for sharing!! Although I am sure that for some clients that's too much information, I am positive that most will appreciate this new tool in my arsenal.
Posted by Lillianne Echevarria (Your Pad | Real Estate Services) over 11 years ago

Great post Geaorge. This a great tool to have. I will use it.

 

Thanks

Posted by Julio Anchante, CRS, Vacaville, CA - Home Search (Century 21 M & M and Associates) over 11 years ago

Leigh - Thanks, it does make a huge difference...I hope you are well

Lillianne - I hope it helps you...take care

Julio - I hope it works well for you

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Do you also provide a second Absorption Rate figure for the suggested price point ($539,000)?
Posted by Robert Kerr (Kerr Financial) over 11 years ago

Yes, this process does work! I've used it before.

I just haven't figured out how to put it into a chart but that sounds like a great idea.

Posted by Peggy Gist, ABR CRS GRI LTG PMN SRES e-Pro (ERA Preferred Real Estate Inc) over 11 years ago
I just used the absorption rate in a CMA presentation today.  It's very sobering and does help homeowners be a little more realistic about their pricing. 
Posted by Carol Williams, "Customized Mentoring & Marketing Services" (U.S.: I specialize in helping agents who have been in the business 2 years or less create a thriving business.) over 11 years ago

Robert -  I only provide in on my suggested price point but any variation can be done

Peggy - Charts can be done with Excel.  Go to the help menu on Excel and type in Charts.  Hopefully this will help you...charts are powerful

Carol - Thank you...so very true

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
I think this ia an important tool for realtors.  It certainly makes it more difficult for the unrealistic seller to argue for an unreasonable price. 
Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 11 years ago
I just spoke with a seller that wants to relist for an even higher price.  I'll use the absorption rate on them.  If they still want to list higher, I'll walk away this time.  In the past, they refuse to listen.
Posted by Kay Van Kampen, Realtor®, Springfield Mo Real Estate (RE/MAX Broker, RE/MAX) over 11 years ago

Great post, George. I track absorption each month for all the communities I service and provide this to past, present and prospective clients. I am curious about why you use 12 months vs. 6. CRS promotes 6 as have others I have hear from on this. Great idea to focus on the like-kind homes in a CMA - I have just looked at the overall inventory to gain a sense of the overall market as opposed to a specific niche.

Thanks for sharing this.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) over 11 years ago

Joan - Thank you and very true

Kay - Good luck to you my friend...Stand your ground!

Jeff - One can use 3 months, 6 months or 12 months out...your choice

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

Excellent post!

Jack 

 

Posted by Jack over 11 years ago
Thank you Jack...have a great week!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

George,  Great post :) keep the good blog :)   it will help some agents to start using this one :)

 

Posted by Ray Saenz, Homes for Sale in Laredo, TX - Texas, Realtor (Exit Realty Laredo) over 11 years ago

Thank you George, I would not have thought to use this number, but it makes complete sense!

Great post, as usual! 

Posted by Ana Connell, Burbank Real Estate Agent (G & C Properties) over 11 years ago
It's this type of tool that really helps sellers to see the true picture.  Thanks so much for sharing.
Posted by Diane Bell, Hilton Head Real Estate, Bluffton (Charter 1 Real Estate, Hilton Head, Bluffton, SC) over 11 years ago
Excellent.  Another tool for my already burgeoning bag of tips and tricks.  I like to do a lot of statistical analysis but believe it or not, this one had eluded me - until now.   Thanks George! 
Posted by Andrew Lietzow, MBA-Exec Dir Iowa Real Estate Investors Association - (IaREIA | Iowa Landlord Association) over 11 years ago
George,  I can see where this can be a helpful tool but I do think that one would need to keep a ongoing monthly chart in order to see trends. Maybe some kind of moving average.  The numbers are too small and can be skewed easily.  Also, sales that happened a year ago aren't really a good picture of what's happening today. Thanks for bringing it to my attention.  I'll have to see if I can take advantage of it.
Posted by Tim Maitski, Truth, Excellence and a Good Deal (Atlanta Communities Real Estate Brokerage) over 11 years ago

I did this chart for a home that I have been pestering the owner for a price reduction. 

3.85 years. 

No graph is necessary, no time line is necessary. 

Posted by Chris Griffith, Bonita Springs Listing Agent (Downing-Frye Realty, Bonita Springs, FL) over 11 years ago
very helpful....learn something new everyday
Posted by Stu Barnes (Barnes McQuade Realty) over 11 years ago
Thanks, this is very helpful.  I've started adding the monthly sales statistics report for the zipcode where a CMA property is located, and that also helps to broaden the knowledge base for prospective sellers.  If 93 homes were listed last month, and only 21 sold - that's a 3-month inventory before even considering homes already on the market.  Add those in, and then calculate the inventory...  It really does help make a case for setting their home apart with listing price and terms - and the agent they choose to do the job.
Posted by Margaret Woda, Maryland Real Estate & Military Relocation (Long & Foster Real Estate, Inc.) over 11 years ago

Ray - Thanks and have a great day

Ana - You are very welcome....good luck

Diane - You are welcome

Andrew - Thanks for stopping by and your comments

Tim - Rember KISS...LOL  I have used this since 1997 without altering it and it has worked wonders my friend.

Queen Elizabeth - Good for you.  I hope it helps

Stu - Good for you!

Margaret -  Good for you...keep up the good work

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Great tip George, I usually use the 'invisible house' concept when pricing (your house won't be seen if its not one of the lowest priced comparables) but your example shows how much longer they can expect to wait. Here our market is still slightly declining so when you add that into the absorption rate its killer.
Posted by Susan Milner, Cape Coral Real Estate Broker, FloridaFutureAgents (Florida Future Realty, Inc.) over 11 years ago

Susan - Thank you and good luck using it.

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

I do this but a bit differently!  Price redux are SOOOOOOOOOOOOOOOOOOOO easy when you do CMA's after the fact AND combine it with absorption rate. 

My people come to me for price reductions, I don't go to them! 

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 11 years ago
George, what can I say?  You are so knowledgeable.  Thank you so much
Posted by Dianne Barody, Pensacola Florida Real Estate (Century 21 AmeriSouth Realty) over 11 years ago
Thank you Renee...it's nice to see you again!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Diane...thank you my friend.  I will help you in any way I can
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George- Great information, really good. I have bookmarked for future reference. Thank you~
Posted by Portland Oregon Real Estate | Alecia Barnes - Broker over 11 years ago
You are welcome Alecia...good luck to you.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

Interesting stat.

Bob Mitchell

ValueList 

Posted by R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham, Bob Mitchell (NMLS#1046286) (Bank of England (NMLS#418481)) over 11 years ago
Thanks Bob, have a great day
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Great information!!  Thank you.
Posted by Robin Willis, CDPE, SRES, Designated Broker (Tucson Expert Agents LLC) over 11 years ago
Absolutely Awesome. And you explained it perferctly.
Posted by John Evarts (Classic Property Management of Santa Clarita) over 11 years ago

Robin - Thank you and you are very welcome

John - Thanks, I needed that compliment today...LOL!

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Great post...THANKS!
Posted by Susie Roscoe, Real Estate Specialist | Brandon, FL (Signature Realty Associates) over 11 years ago
Great use of the absorption. Thank you so much for posting this. I could have used this on my first seller....
Posted by Christy Powers, Pooler, Savannah Real Estate Agent (Keller Williams Coastal Area Partners) over 11 years ago
You are welcome Susie...thanks again for stopping by and sharing your comments.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Christy...you are welcome and good luck to you.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

George,

I added the absorption rates to my marketing letters but because there was little inventory turnover I only update it every 3-6 months so I have more information available. Good idea so the consumer can see the percentage of change.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) over 11 years ago
Thanks Neal...go for it my friend
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George, what a helpful post.  I've bookmarked it.  Thanks much!
Posted by Peggy Edwards, REALTOR - Green Designation, e-PRO, Tampa Bay, FL (Future Home Realty) over 11 years ago
You are very welcome Peggy....good luck to you and let me know if there is anything I can do to help you.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
gracias --I was a little late seeing your post!
Posted by Aziz Abdur-Raoof, Howard Co. Real Estate Scoop (RE/MAX Rewards) over 11 years ago
Awesome post.  i am keeping that for life.  great.
Posted by Marcus Valdez (Berkshire Hathaway Rocky Mountain Realtors) over 11 years ago

Aziz - De Nada, have a great weekend

Marcus -  Good luck to you

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

George,

WE routinely use this in our market place, especially now. 

Posted by Diane Bell, Hilton Head Real Estate, Bluffton (Charter 1 Real Estate, Hilton Head, Bluffton, SC) over 11 years ago
Diane...good for you
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

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