Thank you so much for sending in your information regarding absorption rates. Any feedback we can receive and then spread to the rest of our membership is always beneficial. Therefore, please respond when we send these inquiries out to our organization because the more information we receive the more useful it is to each and every one of you.

Since we broadcast the question regarding absorption rates, we received some insight from the following counties: Chattahoochee, Elbert, Gilmer, Greene, Habersham, Houston, Lowndes, Newton, Oconee, and Union. Some counties apply no absorption rate at all; some apply as much as 50% to the true market values. A couple of counties remove any absorption rates once the developer sells more than 75% of the available lots. Most counties have some type of policy regarding absorption rates but are looking for a better method to apply these rates.

While working on your own absorption rates, a couple of methods are offered for your consideration. According to the first method, you would assume a typical sell out period of 36 months for developer lots. Now you must determine from your own market analysis or through developer relationships what the actual sell out period is currently for your county. If the sell out period is now 48 months, this represents a 33% (12/36) increase in the normal sell out period. Therefore, you would determine the market values for the lots and apply a 33% discount off of each lot or value the lots at 67% absorption of the true market values. Either way you would value $100,000 lots on the books at only $67,000 each.

The second method uses a discount rate, the amount of income and expense to the developer, and a sell out period to determine an absorption rate. In the attached example on the "absorption rate calculation" spreadsheet, assuming a fairly standard discount rate of 8% and a sell out period of 48 months for 100 lots, the calculated absorption rate is 72%. Therefore, each of your $50,000 lots would go on the books at $36,000. All of the numbers in this calculation method can be changed to fit your individual county and/or subdivision requirements. However, now you will at least have some standard procedure to calculate absorption rates.

To access the spreadsheet, CLICK HERE

Again thanks for your feedback and let us know how GAAO can serve you.