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Daily Real Estate News  |  November 14, 2007  |   Absorption Rate Key to Successful Pricing
Telling sellers the price they want to hear may get you the listing, but it won’t sell the home, Zan Monroe, ABR®, CRB, CRS®, said during a presentation at the 2007 REALTORS® Conference & Expo on Tuesday.

Only pricing the listing right will do that, said Monroe, whose comic presentation style had the audience in stitches. And the right price depends in large part on the current absorption rate in your market. Here’s how you find that:
  • First, determine the number of homes closed in your market over a specific period — say, 12 months. You can get this data from the MLS.
  • Next, divide the number of homes by the number of months in the period — in this case, 12. This calculation gives a per month absorption rate.
  • Last, divide the rate into the number of current listings. This yields the months’ supply of homes.

Six months’ supply is considered a balanced market — when the number of listings roughly equals the number of buyers, says Monroe. Numbers over six represent a buyers’ market and those below a sellers’ market.

To assess sales trends, you can also calculate supply over shorter six- and three-month periods. “Price in real estate is mostly a matter of supply and demand, just like in every other industry,” said Monroe.

Once you have these basic calculations down pat, you can focus on absorption in particular neighborhoods or price ranges, says Monroe. Showing clients local absorption rates will give sellers the information they need to price their homes to sell. “Once they’ve arrived at a price, you can decide whether you want to spend your marketing dollars selling it,” says Monroe. If they don’t price it realistically, he concluded, then seriously consider taking a pass on the listing.

Monroe also explained how to calculate the odds of selling any one home. “Even in a hot market, it’s rare for more than 50 percent of homes to sell,” he said. To make this calculation:
  • Search the MLS to determine how many transactions have closed in the last six months.
  • Divide that number by the number of new listing that came onto the market during the same six months. (Don’t include listings that expired and then were relisted.)

This equation gives you the percentage of homes entering the market that actually sold. For example, if 100 homes sold and 200 were listed, the odds of selling are 50 percent.

— REALTOR® Magazine Online

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