Denise, What exactly is the Absorption Rate and how does it impact the sale of my home?
I was at a listing appointment last week and was asked this question. The term “days on market” is a term that we’re all familiar with. This is the average time it takes for a home to sell in Iowa City. The Absorption Rate provides a mathematical formula to calculate how long it will take the current inventory of homes to be absorbed into the market. When we calculate the Absorption Rate the resulting number is the average number of days on market we’re all so familiar with.
So what exactly is this formula? It’s surprisingly simple. Take the number of homes that sold in the past year and divide that by the number of homes currently available on the market. That number is the yearly turnover rate of homes. Divide that number by 12 to get the number of months it takes a home to sell. Due to expired and relisted properties most MLS databases skew the number of days on market low. This is on the other hand a simple and effective formula that gives us a good idea of how long it would take to sell the current inventory if homes continue to sell at the same pace. As real estate is seasonal, looking at the home sales for 12 months takes out the fluctuations that would occur by just looking at the previous month. Also bear in mind that due to the dynamic nature of the MLS with data changing by the hour this is not an exact science. What it does do is give us something to go on.
95 homes sold / 59 homes on market = 1.6 (Inventory turned 1.6 times in the last year).
12 months / 1.61 = 7.5 months or 226 days on market
Just when you thought that was nice and easy, I’m going to muddy the waters for you now. In my market reports I talk about the Absorption Rate for Iowa City. That’s very general. When it comes to value to you as a seller when you list your home in Iowa City, you’ll need to drill it down quite a bit from there. My screenshot is of homes sold in Iowa City in the price range $200,000 – $240,000. When it comes to looking at the absorption rate for your house in Iowa City we need to look at the neighborhood and not just the price range. Typically I look at school district rather than a subdivision. Based on the way data is entered into the MLS it’s a more efficient way looking at specific neighborhoods.
So that’s the nuts and bolts of how the absorption rate is calculated. It’s a very useful tool for sellers in Iowa City to gauge where the Iowa City real estate market is at.
If you’re thinking of selling a home in the Iowa City area Cardinal Realty offers a free in-home consultation where we can discuss your options. I’m a straight talking Realtor who keeps on top of the Iowa City real estate market and is full of good advice on getting your home sold! Give me a call today at 319-400-0268. I promise you it will be worth your while!
