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# Calculating Absorption Rates

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### Calculating Absorption Rates

1. 1. Tuesday, June 3, 2014 CHAMBERSBURG SALES MEETING 06/03/2014 1
2. 2. Best of the Hotline APPRAISAL CONTINGENCY 06/03/2014 2 James Goldsmith, Esq. Caldwell & Kearns General Legal Counsel Pennsylvania Association of REALTORS® www.PARJustListed.com
3. 3. In mortgage transactions, when working with the buyer, always check the Appraisal Contingency Addendum box in the Agreement of Sale APPRAISAL CONTINGENCY 06/03/2014 3 X
4. 4. Always check the box next to ‘The Purchase Price’ APPRAISAL CONTINGENCY 06/03/2014 4 X
5. 5. Real life bad examples: “Portion of roof to be replaced.” SPECIAL CLAUSES 06/03/2014 5
6. 6. Does your special clause answer the four questions: • Who is to perform? • What is to be done? • Who is to pay? • Time frame to perform? SPECIAL CLAUSES 06/03/2014 6
7. 7. When in doubt, have someone else read your special clause. SPECIAL CLAUSES 06/03/2014 7
8. 8. DO YOU KNOW YOUR MARKET? 06/03/2014 8
9. 9. 1. In the month of April ‘14, what percentage of homes were purchased with cash in Franklin County? A. 7% B. 9% C. 13% D. 23% MARKET QUIZ 06/03/2014 9
10. 10. 2. In the month of April ‘14, what was the average length of time a property took to go under contract in Franklin County? A. 62 days B. 92 days C. 132 days D. 152 days MARKET QUIZ 06/03/2014 10
11. 11. 3. What was the median SOLD price in Franklin County in April ‘14? A. \$150,000 B. \$140,000 C. \$130,000 D. \$120,000 MARKET QUIZ 06/03/2014 11
12. 12. 4. How does the listing inventory of homes compare from April ‘13 to April ‘14 in Franklin County? A. +17% B. +7% C. -7% D. -17% MARKET QUIZ 06/03/2014 12
13. 13. 5. How does the number of settlements compare year-to-date from 2013 to 2014 in Franklin County? A. -13.0% B. -1.30% C. +1.30% D. +13.0% MARKET QUIZ 06/03/2014 13
14. 14. 6. What percentage of homes sell in Franklin County within 180 days of being listed? A. 53% B. 63% C. 73% D. 83% MARKET QUIZ 06/03/2014 14
15. 15. TIE BREAKER: What was the dollar volume (to the nearest \$1,000) of residential real estate SOLD in Franklin County in April ’14? \$19,236,000 MARKET QUIZ 06/03/2014 15
16. 16. • Click ‘rbi Market Stats’ in MRIS • Multiple uses:  Listing presentations  Item of value for past clients  Absorption analysis 06/03/2014 16 MRIS MARKET REPORTS
17. 17. Ninety 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? 06/03/2014 17 LISTING DILEMMA FOR SALE
18. 18. 06/03/2014 18 WEAKNESSES OF A CMA • Does not show inventory levels • Does not show whether prices are rising or falling
19. 19. 06/03/2014 19 THE INTERACTION OF . . .
20. 20. 06/03/2014 20 PRICING STRATEGIES ABSORPTION RATE ANALYSIS
21. 21. 06/03/2014 21 ONLINE RESOURCE
22. 22. 06/03/2014 22 CLICK ‘LEARN CENTER’
23. 23. • Web based training • Virtual instructor training • Designations and certifications • Independent study 06/03/2014 23 PROGRAM GUIDE 2014
24. 24. • Inventory – Total number of homes for sale within a defined market segment • Absorption Rate – Rate at which homes will sell within a given period of time 06/03/2014 24 DEFINITIONS
25. 25. • The number of houses sold and closed in a particular time period – three months is preferred • How many listings currently in the MLS • Do not count under contract or pending – only settled 06/03/2014 25 CONSIDERATIONS
26. 26. It’s not that 06/03/2014 26 ABSORPTION RATE FORMULA difficult
27. 27. 1. Closed Sales in 3 Months ÷ 3 Months = Monthly Absorption 1. Total Listings in MLS ÷ Monthly Absorption = Number of Months to Absorb Current Inventory 06/03/2014 27 ABSORPTION RATE FORMULA
28. 28. A 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 06/03/2014 28 ABSORPTION RATE EXAMPLE
29. 29. 06/03/2014 29 ABSORPTION RATE SUMMARY BUYER’S MARKET More than 6 months of inventory results in a downward pressure on prices SELLER’S MARKET Less than 6 months of inventory results in an upward pressure on prices BALANCED MARKET 6 months of inventory
30. 30. 06/03/2014 30 FRANKLIN COUNTY ABSORPTION ANALYSIS – APRIL 2014 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 0 - \$49.9K \$50K - \$99.9K \$100K - \$149.9K \$150K - \$199.9K \$200K - \$299.9K \$300K - \$399.9K \$400K + 3.0 5.2 10.7 7.7 14.8 81.0 15.1 MonthsInventory Price Range Buyer’s Market Prices are Decreasing Seller’s Market Prices are Increasing
31. 31. • Jeff Culler • Bobbi Washabaugh • Jason Rugh APPLAUSE – APPLAUSE!!! 06/03/2014 31
32. 32. PROPERTY/NEEDS EXCHANGE 06/03/2014 32
33. 33. • Tomorrow morning – June 4th • Breakfast will be served from 8:30-10:00 AM by Chef Tom • Pick-up your Berkshire Hathaway HomeServices goodie bag  Business cards  Name badge  Name riders  Assorted ‘stuff’ BH KICK-OFF BREAKFAST 06/03/2014 33