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Absorption Rates Explained With Chart Example


What is this "Absorption Rate" thing anyway and how can I make sense of the data for my clients?  Read on...

Recent blogs on absorption rate prompted me to share my own experience with this market parameter.  Absorption rate can best be thought of as the number of months it would take to sell all existing inventory based on current monthly rate of sales.  If no new listings were to come on the market, that is how many months would be required before the inventory was depleted.  I was introduced to absorption rate by a short but terrific article in the July 17, 2006 issue of Business Week entitled "Tips for Selling in a Changing Market" written by Chris Palmeri.  Of special value in that article was the author's characterization of bounds as "fine", "okay", "troublesome", and "not pretty".  It's always better to quote an outside authority than to try to characterize such things yourself.  I researched the Kauai market via our multiple list service and then created a column chart with color bands to show what was healthy and what was not (see the illustration below).  The color bands allow immediate interpretation as to health of each region of Kauai without struggling with exactly what the term absorption rate means.  In my case, I decided to show single family residential and condominiums separately.  One could also show it by price bands or whatever parameter you deem important.

Hope this is helpful in understanding absorption rate and how to make the data meaningful.  Let me know if you need tips on how to create the color bands in an Excel chart.

Absorption Rate Chart (right click and select

Special thanks to Sandi Bauman who got me thinking about this earlier today.

Visit www.KauaiRocks.com for Hawaii real estate information

Richard Dolbeare, REALTOR-ASSOCIATE

Richard Dolbeare
REALTOR-ASSOCIATE®
Accredited Buyer Representative & e-PRO
Century 21 All Islands, the #1 brokerage on Kauai
(808) 651-4550
(866) 757-8239 (FAX)

Richard T. Dolbeare, R(B) photo

 

Richard T. Dolbeare, R(B)

Keller Williams Realty(808) 651-4550

Aloha@RichardDolbeare.com 

www.MauiSandCastles.com and www.KauaiRocks.com 

 Hawaii multi-island specialist, Maui & Kauai
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Comment balloon 12 commentsRichard T. Dolbeare • July 06 2007 01:24AM

Comments

That's purdy!!!  And pretty educational!  Nice presentation of the local facts. 
Posted by Bob Carney, Licensed MD/PA Real Estate Agent (Taylor-Made Deep Creek Vacations & Sales) over 11 years ago
When taking listings I go over the absorption rates with my clients.  They need to know what kind of market they are in, good or bad.
Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) over 11 years ago
I learned about absorption rates in a CRS class and have been using them in listing presentations every since.  Your chart is great! 
Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 11 years ago
Hi Richard--  Great explanation!!  I'm really anxious to see your chart...  I'm sure that it goes a long way towards understanding the idea... but it's not coming up on my computer??  I just have a box and red X.
Posted by Sandi Bauman, Chico CA Realtor (Chico Homes Real Estate) over 11 years ago
Richard--  I came back to visit again, and presto!!  there was the chart.  Very impressive work- I never could have pulled it off  :)  Nice job.
Posted by Sandi Bauman, Chico CA Realtor (Chico Homes Real Estate) over 11 years ago

Hi Sandi.  The chart is there but sometimes you must right click the X and then select "Show Picture".  The reload button may work too.  Don't know what causes this little annoyance.  Let me know what you think of the chart.

Mahalo and aloha,

Richard

Posted by Richard T. Dolbeare, R(B), ABR, CRS...Hawaii Multi-Island Specialist (Keller Williams Realty Maui) over 11 years ago
Richard - What a great graphic representation of your market.  And, what a great tool to take along on a listing appointment.  I'll bet you work with a lot of professionals who appreciate your very practical way of visually presenting the facts.  Another great job!
Posted by Marlene Bridges, Laguna Homes|Laguna Condos|Laguna Real Estate (Village Real Estate Services, Inc.) over 11 years ago

Marlene--Uhoh, I think my former engineering career is showing <grin>.  Yes I love charts and many of the people I work with are professionals who share the interest in graphical representations of data. 

Posted by Richard T. Dolbeare, R(B), ABR, CRS...Hawaii Multi-Island Specialist (Keller Williams Realty Maui) over 11 years ago

I've used the absorption rate when speaking to potential clients....but  I LOVE the visual you've created!  Thanks so much for sharing this terrific tool!

Posted by This is not an active account (no company affiliation) over 11 years ago
Great presentation on this subject.

I use these statisticcs with both buyers and sellers.

Se my post at: http://activerain.com/blogs/jpeters
Posted by Joseph "Joe" Peters, Helping you to achieve your Goals and Dreams (Coldwell Banker) almost 11 years ago

great graph! Can you give me some tips on how to create it in an Excel? I would like to include it into my appraisal report. Thank you very much.

Posted by Maggie about 10 years ago

Hi Maggie,

Thanks for your comments.  I'm flagged your request and will do my best to post an overview real soon.

Aloha & best wishes,  Richard

Posted by Richard T. Dolbeare, R(B), ABR, CRS...Hawaii Multi-Island Specialist (Keller Williams Realty Maui) about 10 years ago

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