First . . .
important thing to understand about absorption rate is that appraisers are required to use it to determine your homes current value. Therefore it is something that you will need to understand so you can make sure your home is being valued properly.
Secondly . . .
you will need to know the absorption rate so you can determine how aggressively you will need to price your home and to get an estimation of how long it may take your home to sell given current inventory.
What Is Absorption Rate?
Essentially absorption rate is a method to determine how fast homes are selling in a given area AND weighs supply and demand of current housing inventory on the market. A declining figure indicates the inventory is decreasing as more homes are being sold than are coming onto the market. A rising absorption rate implies that there are more homes coming onto the market than there are buyers willing to buy at the market prices.
If 12 homes sold in the last 12 months that means that the market will absorb 1 house per month on average. If there are 10 homes currently on the market, there is a 10 month supply and so on.
a 6 month supply is considered a balanced market:
less than a 6 month supply is considered a seller’s market; and,
more than a 6 month supply is considered a buyer’s market.