absorption rate analysis
DESCRIPTION
The benefits of an absorption rate analysis explained at a sales meeting.TRANSCRIPT
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
• Web-based training
• Virtual instructor training
• Designations & certifications
• Independent study
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%