Use absorption and turnover rates to be more knowledgeable about the area.
It’s crucial to be knowledgeable about various metrics that can help you make better business decisions. Two of the most important metrics are absorption rate and turnover rate. These metrics help you understand market conditions, identify trends, and make informed decisions about whether to invest in a particular area.
Absorption rate is a metric that indicates how long it takes for all the available inventory to be sold in a particular market. It’s calculated by dividing the number of active listings by the number of listings sold over a particular period. This metric is usually expressed in months and tells you how long it will take to sell all the inventory if no new listings are added to the market.
“These metrics are a great tool you can determine the market conditions and identify trends.”
Calculating absorption rate is relatively straightforward. You divide the number of active listings by the number of listings sold over a specific period. For example, if there are 20 active listings and six listings sold in a month, the absorption rate is 3.33 months of inventory.
On the other hand, turnover rate is a metric that indicates how frequently homes are sold in a particular area. It’s calculated by dividing the number of homes sold in a year by the total number of homes in that area. This metric is expressed as a percentage and tells you how many homes are sold annually in a particular area.
Calculating turnover rate is also simple. You divide the number of homes sold in a year by the total number of homes in the area. For example, if there are 300 homes in a farm area, and 20 of them sold last year, the turnover rate is 6.6%.
You’re looking for a higher number when you look at the turnover rate, and if you’re a listing agent, you’re looking for a lower number of months of inventory. That turnover rate is how you’re going to figure out if things are moving enough for you to farm that area. If you’ve got a 1% turnover rate, why would you spend your money doing advertising?
These metrics are a great tool you can determine the market conditions and identify trends, making it easier to explain a neighborhood’s situation to buyers and sellers during an appointment. If you have any questions, don’t hesitate to reach out to me by phone or email.
