Examples of Absorption Rate
Example 1: Seller’s Market
Over the past month, there were 100 homes listed for sale in the area, and 50 of them were sold.
[Tex]Absorption~Rate=\frac{Number~of~Homes~Sold}{Time~Period}[/Tex]
[Tex]Absorption~Rate=\frac{50~Homes}{1~Month}=50~Homes~per~Month[/Tex]
In this scenario, the absorption rate is 50 homes per month. This indicates a seller’s market, as properties are being absorbed quickly by the market due to high demand relative to supply. Sellers may have the advantage in negotiations, and properties may sell relatively quickly, potentially leading to higher sale prices.
Example 2: Buyer’s Market
Over the past three months, there were 300 homes listed for sale in the area, but only 50 of them were sold.
[Tex]Absorption~Rate=\frac{Number~of~Homes~Sold}{Time~Period}[/Tex]
[Tex]Absorption~Rate=\frac{50~Homes}{3~Months}=16.67~homes~per~month[/Tex]
In this case, the absorption rate is approximately 16.67 homes per month. This indicates a buyer’s market, as properties are being absorbed at a slower rate due to lower demand relative to supply. Buyers may have more negotiating power, and properties may stay on the market longer, potentially leading to lower sale prices or more favorable terms for buyers.