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Real Estate Vocabulary – Absorption Rate

When you’re selling a home or buying your first home, real estate vocabulary can be tricky. For example, the other day I used the term “absorption rate”, and my assistant asked when I had developed such an interest in paper towels. She seriously had no idea what I was talking about. So I explained.

Absorption rate is the rate that houses sell in a given area during a certain time period. We real estate professionals depend on these figures to determine trends in the market. Suppose there are 1,000 homes for sale in your hometown, and every month, 100 houses are sold. That means that if the pattern of 100 houses selling each month continues, it would take 10 months to exhaust the supply of houses.

An inclining absorption rate means the sellers are happy – more houses are selling – and selling faster. Sellers are more likely to get a sale at or close to their asking price. In this market, lots of houses are for sale – we’re not exactly seeing many areas with inclining absorption rates.

On the other hand, a declining trend means fewer houses are selling. This creates a positive environment for first time home buyers. Incentives such as reduced house prices and lower closing costs are usually available during a declining trend. And right now, we have been in a declining trend for a while. This is really good news for first time home buyers and real estate investors.

So – absorption rate is one of those real estate vocabulary terms that are important to buyers and sellers, one of the pieces of knowledge that can put you just a little bit ahead of the curve. And now you know what it is, and can understand what your real estate agent is talking about, and how it relates to your situation.