Steve Harney's view on properly pricing property part 2.
Pricing a Property Properly Part 2
Today is the second of a three day review of the components to pricing a property properly in today’s market. The three points covered:
Yesterday: The Competitive Market Analysis (CMA)
Today: Absorption Rates
Tomorrow: Accumulation Rates
Yesterday, we discussed how a CMA looks back over the last six months of activity to try and establish today’s value. Today, we will look at ‘absorption rate’ which is the analysis of current data to determine today’s value. To determine absorption rate requires a simple calculation. Take the number of houses currently available for sale and divide that by the number of homes sold last month. For example: If there are 100 houses for sale and 10 homes sold last month, your absorption rate would be 10 months. If there are 100 houses for sale and 20 homes sold last month, your absorption rate would be 5 months.
Once you have the months absorption rate, there is a guideline every real estate agent should follow. See below:
1-2 months will create double digit APPRECIATION
3-4 months will create single digit APPRECIATION
5-6 months is a normal market (time to get out the CMAs)
7-8 months will create single digit DEPRECIATION
9+ months will create double digit DEPRECIATION
Again, this isn’t a steadfast rule but a great guideline. Tomorrow, we will look into the future and try to establish an ‘accumulation rate’.