Absorption Rate and Months of Inventory - June 2018

The DOM (Days on Market) indicates the market time of homes that have sold. It’s not necessarily reflective of a home’s actual market time though. In a number of cases and as a marketing tactic, when a home’s list price is reduced, the salesperson will relist the home to have it show up on MLS as a new listing. This distorts a home’s DOM: it may have sold within 30 days from the new listing date but could have been on the market for any number of days prior.

The Absorption Rate and Months of Inventory

The Absorption Rate helps resolve any distortion in the DOM. It indicates the following:

  •  How many homes are absorbed (or sold) in the market on a monthly basis within a given period, say 6 months,
  • How many months it will take to sell the current listing inventory,
  • How the seller might position their listing to improve its marketability.

Positioning the Listing:

So, for example, if a seller wants to sell in one month and the months of inventory is 3, the seller would need to position the home in front of the market by pricing it more aggressively than its competition. This helps the seller to set realistic expectations and improve a reasonable buyer’s perception of value.

The following chart shows the absorption rate or average number of sales per month and the months needed to sell existing inventory.

Absorption Rate to Months of Inventory 2018-06.jpg