Paper Towels & Real Estate have a lot in common

Posted on January 28, 2014

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paper towel laying downPAPER TOWELS AND REAL ESTATE?

You are probably familiar with a recent commercial advertising

the “Quicker Picker Upper” (talking about the absorption power of the leading paper towel brand relative to household spills).

Along those lines, the term absorption is used in  real estate to refer  to the

length of time your house can expect to stay on the market (until it is absorbed by the market or SOLD),  with the current rate of home sales.

If you are thinking of listing your house, please feel free to call me to calculate the ABSORPTION RATE  in your neighborhood.

 

ABSORPTION RATE – Is the rate at which homes are selling in a specific area.

 

There are 3 pieces of information you will need to find absorption rate:

 

  1. The specific time frame
  2. The number of sold homes during that time frame
  3. The number of active homes right now

See the following example:

THE DATA:

  • 1. Time Frame = 304 days (total days from January 1, 2011 to October 31, 2011)
  • 2. Number of Sold Homes = 33,163 (from January 1, 2011 to October 31, 2011)
  • 3. Number of Active Homes = 14,156 (at the end of October 31, 2011)

 

CALCULATIONS:

 

  • Rate of Home Sales = .00917 – 1 home is sold every .00917 days.  This number is found by taking 304/33,163 (Time Frame/Number of Sold Homes)

 

  • Absorption Rate = 4.32 Months. Found by taking 14,156 x .00917 (Number of Active Homes x Rate of Home Sales)

 

 

What does this tell us?

 

If market conditions do not change and if no new listings come on the market it will take 4.32 months for the current inventory to sell at the current pace of the market.  A balanced market’s absorption rate is typically between 5 – 7 months.

So be sure to give me a call and have me research the ABSORPTION RATE before I list your house in Baton Rouge.   225.938.8229

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