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Absorption Rate in Parker Colorado Real Estate

April 26th, 2012 | Written by | Market Reports for Parker Colorado

The buzz word in Parker Colorado Real Estate used to be neighborhood Absorption Rates.

Be sure to read the last line… And, leave a comment if you wish. It’s just my opinion.

Notice I said neighborhood absorption rate not Parker or Denver or Castle Rock absorption rate. Why? Absorption rates in my opinion are best calculated by individual neighborhood. All real estate is local correct? Two neighborhoods, even though they are across the street from each other, can have very different absorption rates. So, price ranges within neighborhoods can also have very different absorption rates.

Absorption Rate Target Market

Appraisers use “like kind” homes to complete appraisals of properties. Absorption rates, to be accurate in my opinion” should be calculated the same way.

Now with inventory levels in the Denver Metro sinking to record lows absorption rates don’t seem to be discussed as much as the used to be but I think they should.

What is absorption rate for a neighborhood and how do you figure the numbers?

Neighborhood Example:

  • Figure how many homes have sold in the neighborhood for the past 12 months.
  • Divide the total number of homes by 12 to see how many homes are selling per month. This will give you the average number of homes sold per month.
  • Obtain and accurate count of all the currently active homes on the market  and divide that number by the monthly absorption rate. Now you can see how many months supply are currently on the market. This is your competition.

The above example is a very basic way to gain the absorption rate for a neighborhood.

In most cases you need to dig deeper to get a more accurate number. When the market was declining rapidly the best way to discover an absorption rate was to go by a price range within a neighborhood.

Many neighborhoods have overall price ranges that may vary from the mid $200,000s to the upper $500,000’s. I can almost guarantee you a home priced right around $300,000 will sell much quicker than a home at or above $450,000 even when they are in the same neighborhood. This is why compiling the absorption rate by a specific price range is more helpful.

So how do you figure real estate absorption rates for a price range? The same as above but take it a step farther. Let’s say I complete a market analysis for a home and I believe it will sell for $300,000.

  • My initial search would included similar sold homes priced within my subject property price range of $300,000. [must be the past 12 months]
  • Let’s say there are 24 similar homes that sold for right around $300,000 in the past 12 months. We would divide that number by 12 to get 2. Two is the average number of homes sold in a month.
  • Again search for the similar active homes in the $300,000 price range. [lets guess there are 7 on the market now] Divide that number by the average monthly sales rate of 2.
  • That tells you that there is a 3.5 months supply of homes on the market before you list your home for sale.

Absorption rates are important but not the only calculation to base your home sale price on.

In the current Parker CO. market homes are selling at a record pace. Many homes are barely hitting the MLS before they are under contract. I’ve recently began calculating time on market for my listings in hours not days.

Deer Creek Farms Home Sold in 7 hours

Stonegate home sold in 6 hours.

So, if properties are flying off the shelves at record pace NOW and we are using sales data from 12 months ago to compile these numbers [when it was a very different real estate market] is absorption rate really necessary or is it even accurate? I don’t think so. At least not in Parker right now.

I believe properties still need to be updated, clean and priced well to sell quickly. We are not out of the woods yet but this sure has been a very active start to 2012.

Best tips to sell your home fast.

 

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Steven Beam, Realtor, CRS
303-941-4663
18551 E. Mainstreet Suite 2-A
Parker, CO 80134
Parker Colorado Real Estate

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