By Ron Barnes
Associate Broker – Prudential Georgia Realty
A common question being asked by those wanting to sell their home is “what price can we ask to guarantee our home will sell within the next (fill in the time period)?” The truth is there is no magic formula to answer that question. However, there is a way to approach the question. It is called absorption rate pricing.
Space will not allow me to go into great detail to explain this, so check with your real estate professional if you have questions.
The following illustration represents “The Pond” of homes circulating through the market. The “flow” is the top layer representing those homes most aggressively priced that enter the market stream and flow out quickly. The “show” is the group of homes that get shown, but never get offers. The “stagnant mass” is where many homes reside in this market; priced too high, they never even get a showing, much less an offer.
The Absorption Rate is the ability of the real estate market to “absorb” or sell all of the houses for sale in a given amount of time. For example, if 50 homes are sold every month and there are 600 homes for sale, it will take 12 months to sell all of the homes currently on the market. If there are 1,200 homes for sale, the absorption period will be 24 months. This does not take into consideration new listings that come on the market, withdrawn listings, and listings that expire.
If you would like to sell in 12 months, you need to take the absorption rate into account. In the above scenario with 2400 homes for sale, we know that only 1/2 of them will sell in the next 12 months. If you need to sell within the next 12 months you need to price the property in the lower 50% of the price range for similar properties in order for it to sell in the next 12 months. To sell in the next 6 months it would have to be priced in the lower 25% of the competition.
Obviously this article is more theoretical than practical, since the details of your home and local market need to be applied. However, it is no accident that while the average absorption rate for Pickens over the last 15 months is 4.13, the average for homes under $100,000 is nearly three times that rate. Interestingly, homes priced from $250-300K are at about half the rate compared to homes in the $200-250K range, so if your home is worth $240,000 and you’re trying to squeeze it for $260,000, you’re only fooling yourself.