Absorption Rate – What is it and How is a Buyers and Sellers Market Determined?

Posted by Ashford Realty Group on Friday, December 10, 2021 at 7:04 AM By Ashford Realty Group / December 10, 2021 Comment

Absorption Rate – What is it and How is a Buyers and Sellers Market Determined

The absorption rate in real estate is used to calculate the housing demand in specific areas. The absorption rate is determined by dividing the number of homes sold over a given time by the number of homes still available. When the homes are selling fast, the absorption rate will be higher. If there is more than one price range in the area, it can be calculated based on homes only in your price range.

Basically, the absorption rate states that if no more homes or properties were listed on the MLS as of today, it would take X-number of days for all of them to sell. In a tight market, homes would sell at an absorption rate of less than a month. The average in a balanced market is about 3-6 months.

Determining if the housing market is considered a buyers' or sellers' market is usually not difficult. If the housing inventory is low, meaning that there aren't enough homes available to meet the demand of buyers, it would be considered a seller's market. This is advantageous to the seller as it is more likely that the seller would receive multiple offers.

Whereas in a buyer's market, there are more homes available than buyer's giving the buyer an advantage. Whether you are in the market to buy a home or contemplating selling your home, it is a good idea to evaluate the market to determine if the current market is a buyer or seller's market.

Determining the current market will help you make educated decisions and understand if you as the buyer or seller have the upper hand when making an offer or accepting one. It is generally the easiest route to consult a real estate agent for their expert opinion regarding the current market conditions. A real estate agent can give you insightful information as to how to make your home outshine your competitors.

At Ashford Realty Group, we make it our business to keep up to date on the housing market, current trends and help you get in the best possible position to sell your home.

Seller's Market or Buyer's Market? What's Happening?

Home inventory is extremely important whether you are the buyer or the seller, so it's best to know the current availability. Reviewing homes for sale within the last 30 days, check to see how many homes were for sale, and divide that number by the number of homes that were sold.

What's selling?

If there were a handful of homes for sale and most or all of them sold, it is a seller's market. If only one home sold, leaving more homes on the market, it's a buyer's market. Comparing homes that recently sold in your area will give you a bigger picture as to your current position in the housing market. Being able to compare similar homes in your area will help you determine what your asking price should be for your home.

What's the Asking Price?

If homes in your area are selling for their asking price or above, it is a seller's market. If you are noticing prices dropping in your area from the original asking price, you are likely in a buyer's market.

Interest Rates

Interest rates can make a big difference in determining if the current housing market is a buyer's or seller's market. Due to historically low-interest rates, more first-time homebuyers are making their move into homeownership reducing the housing inventory. Having more homebuyers and reduced inventory puts a seller in an excellent position to potentially receive more offers to choose from.

There are pros and cons to being in either a buyer's market or seller's market, each one generally gives more control over the sale depending on which housing market you are currently in. In the past, it has been common practice for a buyer to put a contingency to allow a home inspection to be completed, that the buyer is responsible for paying for. However, times have changed and with it being a seller's market most homebuyers don't want to risk being on the losing end of multiple offers so they are forgoing the inspection altogether.

Some sellers are opting to have a home inspection done before listing their home to discover any issues that may affect the sales price. A pre-sale inspection is a good idea to get the best possible price for your home but, also due to buyers forgoing an inspection, making one available to a buyer gives the buyer more trust in the seller and confidence in the overall transaction.

Deciding to buy a home or sell a home with the different markets can be difficult, you want to time the transaction just right to get the best possible deal for you. A real estate agent with experience and knowledge is most often the best way to move forward, they can help pinpoint your wants and needs, make suggestions on when to move forward, work with your timeline, and guide you through the entire process.

Ashford Realty Group provides a free consultation to help both buyers and sellers examine the individual situations that will ultimately help them improve their home buying and selling experience. Contact our office anytime, we welcome the opportunity to guide you through the home buying or selling process.