What Impact Does Absorption Rate Have on the Market?
The absorption rate is a vital calculation in real estate and is evaluated and used in various ways within the market. For example, an agent might raise the price of his listing if the absorption rate favors a seller’s market. The agent chose to do this because demand for homes in this market is high. On the other hand, when absorption rates are low, this same agent might have to lower the price of his listing in order to get attention from prospective buyers. In general, when deciding whether to buy or sell a home, absorption rate should be considered first in this process. When absorption rates are high, it may be a smart idea to hold off a few months when buying. This will allow for the rate to come back down.
Also, absorption rate can cause an increase or decrease in the need for building new homes. High absorption rates cause an increase in construction of homes and are monitored by construction companies. These corporations factor in absorption rate when projecting year-end or end of month sales.
Lastly, it is a common practice for appraisers to factor in absorption rate when deciding the value of a home. Often it is required for some form of absorption rate to be used within the appraisal process. Appraisers may even calculate the absorption rate for a specific neighborhood. This would allow them to get a more in depth understanding of the true value of a home.
