How to Calculate Absorption Rates

You can calculate absorption rates in a number of ways. The real question is which way does this information make the most sense? Should it be defined in weeks or months? Should sales data be collected from only the previous month, quarter, two quarters, or year? The general rule of thumb is to divide the number of homes sold in one year by 12 to calculate the number of homes sold per month. Then take the current listings and divide by the number of homes sold in a month. The absorption rate equals the number of months it takes to sell a home: Homes Sold (2400) / Months (12) = 200 Home sold per month 700 Current Listings / 200 Homes sold per month = 3.5 months So, using this data the home should be sold in 3.5 months.How Absorption Rate is figured explains how to do this using weeks instead of months which seems to be a more accurate figure.This can be done for the last quarter, semi-annual, annual, or 2 year range. If you're calculating the absorption rate for the entire Las Vegas market, this number really means nothing. To calculate a meaningful figure break down the numbers down to market segments: 1. Analyze the sales in a particular subdivision, zip code, or map book page. 2. Bracket related information. For example, square footage, type, lot size, age or in-ground pool. 3. Add a particular price range to any one of these parameters. Now the result is useful.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• To find more about absorption rates and appraisal theory go to www.appraiserlasvegas.org or www.activerain.com

1. Gather local sales data.
2. Figure which way to calculate makes sense.
3. Produce a useful result.