What is the absorption rate and how can it help you sell your home? Simply put, the absorption rate shows the rate we can expect homes to sell in a given area and in a given time frame. It helps sellers listing their homes understand the average time it takes homes similar to theirs to sell and how that relates to the sale of their home.
The market in Iowa City is changing and we’re trending towards a sellers market. That doesn’t mean every house or condo will sell in a day or a week or a month. The absorption rate helps sellers to understand exactly what is meant by the so called “sellers market.” To calculate the absorption rate we look at both past home sales and homes currently on the market. In my Market Reports I look at the market as an entire area. That’s perfect to see how the market is trending. When you’re listing your home for sale we need to look closer at the market and specifically homes with similar parameters to yours.
Analyzing the absorption rate is helpful not only to understand the average time it takes homes like yours to sell, it also helps to know where your house needs to be priced for a quick sale. Of course analyzing the absorption rate, just like the Contract-to-Listing Ratio, is not an exact science – It’s another tool in a good real estate agent’s toolbox to help seller clients make smart decisions when they list their homes for sale.
How to Calculate the Absorption Rate
Data you need to calculate the absorption rate
- Number of homes sold in the last 12 months with specific parameters similar to your house (Real estate is seasonal and looking at the full year avoids the month to month fluctuations)
- Number of homes currently listed with the same parameters.
Divide the number of homes sold by the number of active listings to establish just how long the turnover rate is for homes. In other words, how long it takes the market to “absorb” homes.
Divide the 12 months of the year by that number. The result is the absorption rate in months that is multiplied by 30 for the average number of days on market.
More than 6 months is considered a buyers market, less than 6 months a sellers market and anything around 6 months is considered a neutral or balanced market.
Absorption Rate for Single Family Homes – $200,000 – $225,000
The absorption rate for homes priced $200,000 – $225,000 Iowa City is 3 months or 91 days. That’s definitely a sellers market and a strong sign that if you have a house in this price range it’s a great time to list it and expect a quick sale. What you can also see in the graphic that roughly 6 homes in this price range sold per month in the last year. When you’re ready to list your home that information will help you work on a strategy to figure out what you need to do to make sure your house is one of the houses that sells in any given month!
Just as a reference, I also ran the numbers for homes priced $225,000 – $250,000. For homes in that price range the absorption rate is 4.6 months / 140 Days on Market. That’s still in the seller’s market range. It’s worth noting that if you have a house to sell in this price range you might need to have a little more patience about getting that offer.
Yes, Iowa City is trending towards a sellers market in many price ranges. That doesn’t mean all houses sell the moment they hit the market. Knowing the average time homes spend on the market means sellers don’t need to second guess themselves when their house doesn’t get that quick offer and know that time is on their side.