What is the Absorption Rate in Real Estate

The absorption rate in real estate is the rate at which listed homes in a given market will sell over a defined time frame.  A community can be defined as a neighborhood, city, zip code, county, or metropolitan statistical area.  This important statistic will help you figure out how long it will take to sell your home under current market conditions.

Calculating the Absorption Rate in Real Estate

To calculate the absorption rate, define a time frame, say one month. Second, count the number of homes that sold over the past month.  Third, divide the number of homes sold by the number of homes listed in the market.  For example, if 200 homes sold in Boynton Beach in 30 days, and 300 homes are currently listed, the absorption rate would be 66%.  Therefore the market would have 1.5 months of inventory.  This means that a home seller in Boynton Beach that prices his or her home according to market value could expect to sell their home within one and a half months.   It is best to calculate the absorption rate for similarly priced homes since different price ranges tend to sell at different rates.

Buyer’s Market vs Seller’s Market

The absorption rate will help you to determine how long it should take for your home to sell. While it also reveals important clues about the overall market conditions.  An absorption rate above 20% indicates a seller’s market.  A 15 to 20 percent rate is a balanced market, and a rate below 15% is a buyer’s market.  Be sure to discuss the absorption rate in your market with your agent during the listing presentation so that you will have clear expectations for your sale and can plan accordingly.