How to use Absorption Rate to Choose a Farm Area
Choosing an area to farm in real estate can be just as important as the farming material itself. Many real estate agents choose to market to their own subdivision and that’s fine, but how do you choose what area to farm when spending a chuck of money? We recommend taking a methodical approach to choosing a farm area. Absorption Rate can prove to be invaluable when choosing where to spend you precious marketing dollars. Lets start with a basic definition.
What Is Absorption Rate
Absorption Rate: The rate at which active real estate properties are being sold in a predetermined real estate market during a given time period. Absorption Rate is calculated by dividing the total number of available homes by the average number of sales per month (rate of consumption). The Absorption Rate shows the current pace of sales, how long it will take (with no new properties hitting the market) to sell through the existing supply of homes.
Variations in Absorption Rate can come from different ways to “average” the number of sales per month (rate of consumption) and some can choose to use “Pended Sales” as opposed to “Closed Sales” as the other factor. Also, some may choose to show an absorption rate as a percentage and some choose to show a “Months of Inventory”. And lastly to simply confuse, some consider the absorption rate to be the rate of consumption and that should be divided by the available units to come up with “Months Supply”. For our purposes, the Absorption Rate IS the months supply of available housing in a particular area.
OK OK – So How Do I Use Absorption Rate To Farm?
With all of that behind us, when choosing a farm area, it really doesn’t matter how many homes have sold, what matters is the demand. A typical market will have between 4-7 months of inventory. You still need to pay attention to other numbers—tiny areas without enough data can skew the numbers terribly. When choosing a farm area, you will want to find a place with a decent amount of active properties and below 4 months of inventory (the lower the better). This will ensure that when you farm, when you get a listing, you will have demand for that listing. Farming an area of homes that don’t sell is an expensive exercise in futility.
Compare Apples To Apples
Mark Twain said “There are three kinds of lies: lies, damned lies, and statistics.” Different people come up with real estate statistics in different ways so be careful in using someone else’s absorption in one market compared to another. As long as the statistics are derived with consistency you are OK, but that is not always the case.
Use A Variety Of Marketing Tactics
Once you have found the perfect farm area using Absorption Rate, then you should use a variety of marketing tactics to swarm the potential buyers or sellers. Since you never know what will push someones buttons, so you shouldn’t put all of your eggs in one basket. One obvious way to market to a chosen farm area is to use Facebook Marketing. With Targeted Facebook Marketing you can run an ad that will be seen on the Facebook wall of ONLY THE PEOPLE in your farm area. Then you will want to customize that ad just for them—maybe use a picture of the front of the subdivision or statistics on that particular area. Then create a landing page that backs up your Facebook ad to convert. And then, we also recommend using a Facebook Remarking campaign for everyone who landed on that webpage.
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