Absorption Rate Analysis


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The benefits of an absorption rate analysis explained at a sales meeting.

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Absorption Rate Analysis

  1. 1. Tuesday, June 18, 2013Carlisle Office SalesMeeting
  2. 2. Faith Michael Celebration• Date: Monday, June 24th• Time: 5:00-7:00 PM• Place: Cumberland Golf ClubFood will be provided along with your first drinkto Laura Alwine
  3. 3. Market KnowledgeWhat is the average sale price of a home in Area 7 of the MLSthis year?A. $159,098B. $164,002C. $169,980D. $171,147
  4. 4. Market KnowledgeWhat is the average number of days on the market of a home inArea 7 of the MLS this year?A. 133B. 111C. 98D. 92
  5. 5. Market KnowledgeWhat percentage increase in sales in Area 7 of the MLS have weexperienced this year?A. 2.9%B. 12.5%C. 16.2%D. 19.8%
  6. 6. Listing DilemmaNinety days ago you took a listing in _________ Township for$_______ which was within 5% of the value indicated in yourCMA. You’ve completed all the marketing activities that aprudent real estate agent would perform but you’ve only hadtwo showings on the property and no offers. Your seller isgrowing a little frustrated. What do you do?Perform an Absorption Rate Analysis
  7. 7. Weaknesses of a traditional CMA• Does not show inventory levels• Does not show whether prices are falling or rising
  8. 8. Pricing StrategiesAbsorptionRate Analysis- Anticipate the market to sell more listings
  9. 9. online information source for workplace development
  10. 10. • Web-based training• Virtual instructor training• Designations & certifications• Independent study
  11. 11. Two Important Definitions1. Inventory – Total number ofhomes for sale within a definedmarket segment2. Absorption Rate – Rate at whichhomes will sell within a givenperiod of time
  12. 12. Absorption Rate Considerations1. The number of houses sold and closed in a particulartime period – three months is preferred2. How many listings currently in the MLS3. Do not count under contract or pending – only settled
  13. 13. Absorption rate formula1. Total number of closedsales in a 3 month perioddivided 3 months equalsthe number of propertiesabsorbed by the marketmonthly (Absorption rate)2. Current listing inventory inthe MLS divided by themonthly absorption rateequals how many monthsit will take to absorb whatis currently for sale(Inventory span)
  14. 14. Absorption Rate ExampleA thorough examination of the market determines that therehave been 300 closed sales in the last 3 month. At the presenttime, there are 600 residential homes on the market. What isthe absorption rate?1. 300 sales ÷ 3 months = 100 homes selling per month2. 600 homes in inventory ÷ 100 homes selling per month =6 months of inventory on the market
  15. 15. Absorption Rate Summary6 months of inventoryMore than 6 months ofinventory results in adownward pressure on pricesBuyer’s MarketLess than 6 months ofinventory results in anupward pressure on pricesSeller’s MarketBalanced Market
  16. 16. Absorption Rate AnalysisGeographic Area: Area 7Three Month Moving Average – March through May 2013024681012147.4 6.9’s MarketPrices are IncreasingBuyer’s MarketPrices are Decreasing
  17. 17. 120125130135140145150155Days on MarketGeographic Area: Area 7Year-to-Date through May2012 2013152133-12.5%
  18. 18. 290300310320330340350360Units SoldGeographic Area: Area 7Year-to-Date through May2012 2013313352+12.5%
  19. 19. $168,500$169,000$169,500$170,000$170,500$171,000$171,500Average Sold PriceGeographic Area: Area 7Year-to-Date through May2012 2013$169,636$171,147+.9%
  20. 20. Video/Picture Tour Alternative