Absorption Rate

[jeff wilson]

Just wondering if anyone has used the absorption rate equation. Would like to know how to use it and what the equation is for residential properties. I am doing an upscale new townhome appraisal with numerous new townhomes on the active market located in the subject's development.

 

[kevincwong]

I did appraisal for World Savings before. They require
to show the absorption rate on the report.

Here is how I did.

# OF MONTHS: always 6

# OF SOLD: number of sold, let say 8

ABS. RATE: (# OF SOLD / # OF MONTHS) = ( # OF SOLD / 6) = 8 / 6 = 1.3


Hope this help.

 

[DonPearsall]

Kevin is correct about the absorption rate formula. It is a good indicator to quickly see how the market has historically performed.

For the current and short-term forecast of how prices will react, you can use the absorption rate to determine the "standing inventory."

Standing Inventory = Current # of listings / absorption rate. This yields the length of time to deplete the inventory of listings. A low number means a shortage of inventory (high demand) and results in high prices, high number means supply exceeds demand and results in low prices.

 

[Edd Gillespie]

As usual we the appraisers are the historians. Does the absorption rate predict the future? Tread carefully. I am told abosrption rate graphs stretched out over a longer period of time turn into rather steep exponential curves. If this absorption rate is being used in a feasability context you might have some additional work to do.

 

[Marty Skolnik]

http://www.realestate-consulting.com/Artic...20%20Demand.pdf


See if this article that I wrote for the Appraisal Journal many, many years ago is helpful...



Marty Skolnik
Baltimore, MD

 

[Tawfik Ahdab]

Marty, that article was excellent. I am grateful for your link and am honored to have you as a fellow forumite.

Your contributions have been incorporated into the AI textbooks: Subdivision Analysis, and Market Analysis for Valuation Appraisals, no doubt.

Many thanks!