Knowing your area’s Absorption Rate, helps to track trends. Understanding the market and where it is headed is part of our job as real estate professionals.Absorption rate is NOT an exact science. Figuring it is based on the premise that one will be looking for a TREND. It is advised to consistently do the numbers each month, to be able to track a trend.
Getting Starting…
You need to know 2 figures.
1) How many listings are currently on the market?
2) How many listings sold last month?
You will be counting under-contract or pendings as listings, since they are not SOLD yet.
Multiple the number of solds last month by 12 (months).
Divided by the current listings equals # of Units that would sell each week.
Divide the # or units that should sell each week into the number available = absorption rate.
The Definition of Absorption Rate:
Number of weeks it takes to sell the current inventory at the present rate of sales.
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One Comment
Great information — I run into Realtors all the time who don’t know how to calculate absorption rates.
By just using one month’s sales, do you see your absorption rates fluctuate drastically? I average the most recent three months of sales to get a better monthly average to work with. (http://tinyurl.com/2gsybh)