Zan Monroe explains absorption rate, the newly mandated metric on appraisal reports starting April 2009. He breaks the market into three segments: homes that sell fast, homes stuck without offers, and a stagnant mass that never sells. Understanding the proportion of each tells agents and appraisers whether a property will actually move.
This is the magazine of the Worldwide Relocation Services, Mobility. On the front cover it says absorption rate critical in a changing marketplace. Uh, this has become the new way of pricing properties, and the U.S. government has figured it out. As of April 1st, every appraisal report will have an inventory analysis absorption rate trend on the sheet. We're going to show you how to create absorption rate trends today. You may be called upon by your local appraiser to teach this class. I just taught a whole group of appraisers in Fayetteville, and Mark Given and I are getting ready to go to Washington, D.C. We're going to meet with HUD because they had no clue how to calculate absorption rate. They were just given this and said, figure it out. Freddie Mac, Fannie Mae, every appraisal after May— April 1st, 2009 will be required on each and every appraisal. Here is how you have a reason to talk to your clients. Mr. and Mrs. Seller that I have represented currently, as of April 1st, Freddie Mac and Fannie Mae have altered the way appraisals are done. It is my job as your trusted real estate advisor to bring this to your attention and sit down with you and show you the new methods. You with me? Yes, ma'am. And harassing the loan officer doesn't help. And what? Harassing the loan officer does not help. If you're not appraiser, if they— Right. —you're running their own little world. Right. Okay. And we have actual declarations. Right. Yeah, yeah. We're not gonna call you guys. You guys need to know how to calculate absorption rate. That's where we're going this morning. Okay? I think they gave you the pond graphic. Yes. Let's talk about what really happens in real estate markets. In real estate markets, new properties are coming onto the marketplace constantly. This is the first thing I was shown 25 years ago, 27, 28 years ago when I got into real estate. New homes are constantly coming into the market. Constantly homes are leaving the market as being sold. Now the question is, what happens to the market? Well, here's what happens. Some homes enter the market, they are priced correctly, they have a great value, they're priced, they're shown, they get offers, they sell, they close, and they move out of your marketplace. I've tracked closing numbers for years, and here's what I know. Of the properties that close, the average sales time has never in my 28 years exceeded 45 days. The average sales time has never exceeded 45 days. Say that again. I will say that again. Of the properties that do in fact close, if you track their days on the market, not the marketplace, but just the ones that close, I've never found a market higher than 45 days. Average. Now you may have one that's out there a year and you may have some that are out there a day. But you see, we get lost in the days on market number, which includes these houses that enter the market and they fall down into the middle of the market where they're shown because of some ridiculous price, but they're not going to get offers. They're not going to sell. People will look at some of your listings simply because of the price point. They go, It can't be accurate. Let's go look at it. And they leave going, you're kidding me. And then you have properties that enter the market and they fall immediately into what's known as the stagnant mass. There is a baseline of properties in the United States right now hovering around 50% of the marketplace that is not being shown, is not going to be shown, and is not going to be sold. I flew here yesterday and the guy in the seat beside me ran A.C. Moore, general manager of an A.C. Moore store. Do y'all have A.C. Moore here? It's like a home decor, picture frames, art supplies, seasonal. Am I describing it correctly? Yeah. I talked to him about his inventory turnover. And he said, "Well, you know, we in the retail business must only put things on the shelf that the consumer will buy. When we make a purchase and we put it on the shelf and the consumer doesn't buy it, we have to discount it. And if it doesn't sell, then we put it in the giveaway pile and eventually we can't even sell it at any price." This is— and I talked to Mark Given, who's in the electronics business for years and years. Inventory turnover. The problem is we've never thought about the housing industry as having an inventory that needs to turn over. This is the Christmas stuff left over in May. These are the used wedding dresses. Selling a million-dollar home in today's Charlotte market is probably like selling a used wedding dress. There's no market for it. The shown but not offered. This occupies a lot of store shelves and the profit is all up here. Our question to you is, what kind of houses would you like to list? Would you like to list homes that enter the market and fall into the stagnant mass? Or do you want to list homes that are shown but not sold? Or do you want to list homes that sell and come off the market immediately? Let's talk about absorption rate. I'm on page number 1. There are only a certain number of houses in any given market that will sell in any given period of time. Would you like to see if your house is going to be one of those? Say it with me. There's only a certain number of homes that that are going to sell in any given period of time in any given market. Would you like to see the odds of your house being one of those? I think that's at the top of page 2. There's only a certain number of homes that are going to sell in any given market in any given period of time in any given price range. Would you like to see the odds of your house being one of those?
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