Absorption Rate Analysis vs. Comparitive Market Analysis
Tell the truth Tuesday! Have you ever heard of Absorption Rate Analysis? If you haven't that's ok by the end of this short blog you'll be able to at least nod your head and feel confident that you're an informed consumer. If nothing else I hope you've heard of CMA's and their role in trying to evaluate the value of your home.
In a nutshell... CMA's take a look at your given market and take a look at listings that would be comparable to your home in a variety of factors, given: square footage, age, design, etc. and then using that seach criteria we look at active listings, sold listings, and even expired listings. We as realtors know that it is not a perfect science and that there can be many contributing factors when it come to the sale price of your home. People's motivations and needs for quick sale timelines can have drastic effects on their bottom line. To explain in plain English you can picture people selling sleds, atvs or boats on Kijijiji or any other classifieds. Some prices can be way cheaper than market value based on a persons need for quick cash. Obviously this is a simplified explaination of CMA's but I hope I made it a bit easier to understand.
On to Absorption Rate Analysis and how it differs from CMA's and why I think its so important that we as Real Estate Agents explain this information to consumers. "ARA" is simply put, how many homes similar to the subject home have been absorbed by the market in a given time frame. Back to the classifieds example. If you are trying to sell a sled right now, it is very important you know how many sleds similar to yours have been bought and taken off the market in the last ex. month. Since every month is dependent on market conditions(job market, new sled model releases) and market climate conditions( temps, snowfall etc), smart seller try to time the market. It is also important to note that when buying a house or a sled, buying a sled that has easier resale absorption rate and not buying models that are unique.
When sitting down and looking at the market for your home we would look at the competition for your listing and how many homes have been absorbed at a price point in the last few months. This way it is easier for us to judge and give a rough estimate of how long a house would be on the market at a give price with a big caveat... no new listings come on the market which are in direct competition. That is one of the jobs of your agent is to keep an eye on the market for new listings and to give that informaton to you the customer. For example if you are needing to sell your home for a job transfer and need to sell it is critical that you don't sit on the market with new listings popping up and not at least think about adjusting your price accordingly. Alternatively it also helps to understand how, if houses similar to your listing are selling faster than the market can replace them your negotiating power increases.
That's enough! If you've read this far I hope I haven't confused you and that you enjoyed the comparison between classifieds and real estate listings.