Market Absorption (absorption rates) is a real estate term that is frequently thrown around by real estate professionals- which  many buyers and sellers may be unfamiliar with. In fact, one of the most frequently asked questions from home sellers is, "What is market absorption?" 

For a variety of reasons, market absorption in real estate is an extremely important statistic for both buyers and sellers. It is critical that buyers and sellers fully understand what market absorption is, how it is calculated, and how it can affect them. 

If you're planning on buying or selling a home, keep reading to learn about market absorption, how it's calculated, and the potential effects it can have on your real estate transaction.

What are Absorption Rates?

Put simply, the absorption rate is a measure of supply and demand. By taking the number of homes sold in a month and dividing it by the number on the market, you can find a percentage that determines how quickly homes sell. Rates over 20% indicate a hotter real estate market with rising home demand and home prices. (Dehan) 

For instance, lets say the current market absorption rate in the Ventura County Real Estate market is 5.5, this means that if no other properties were listed, it would take five and a half months to sell all of the remaining homes on the market.

Why are they important?

Absorption rates are critical for both sellers and buyers. They can estimate the length of time the home will be on the market by comparing it to the rate at which comparable homes are selling. It can also affect the price of the home.

How do absorption rates affect sellers?

In a market with a low absorption rate, sellers may have to lower their home price to attract buyers. Sellers may accept less than market value for their home because the market in the area has slowed and they need to sell. (Dehan)

How do absorption rates affect buyers?

It can be difficult to find a suitable property if a buyer is looking to buy a home in a specific area or neighborhood with a low market absorption rate. A seller's market (a market in which demand exceeds supply - the number of buyers looking to buy properties exceeds the number of available properties for sale exists when an area or neighborhood has low market absorption rates. Another effect the market absorption rate may have on a buyer is the price they will pay for a home. When a buyer searches for a home in an area with a low market absorption rate, the chances of being in a multiple offer scenario increase- which usually results in a buyer paying more for a home.

In Conclusion

Market absorption rate is a key real estate term that both buyers and sellers should understand. As the preceding data shows, the market absorption rate can have an impact on the buying and selling experience. 

If you're considering purchasing a home, knowing the market absorption rate can help you understand what you'll be up against. It is critical to understand whether you should request seller concessions or home warranties in your offer.

If you're thinking about selling your home, knowing the absorption rate can help you decide when to list it. Furthermore, it can help you determine whether or not you will have a large number of buyers interested in your home.