Absorption Rate Is
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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