Absorption rate, also known as the absorption ratio, is a term used in the real estate market to measure the rate at which available homes or properties are taken up, based on the supply and demand ratio. Put plainly, it is a key indication of the overall health of a real estate market. Realtors, appraisers, and lending institutions use this metric to understand value, market conditions, and adjust their terms accordingly.

Absorption rate is determined by dividing the total number of units sold over a specific period of time by the total units available on the market. Absorption rate can be calculated for a given area or within a collection of connected areas. The number of units sold can be found in public records, or from MLS (multiple listing service) or other sites.

High absorption rate fundamentally denotes that demand for properties is greater than supply of properties.

A calculation of absorption rate typically indicates one of two things; a strong seller's market or a strong buyer's market. Generally an absorption rate above 20% is viewed as a seller's market when buyers are competing and actively bidding up the price. Comparatively, an absorption rate below 15% is seen as a buyers' market, with more options and inventory than buyers who are more fickle in terms of their buying power.

In accounting, absorption rate can also be used to allocate overhead costs among different businesses within a company. This is a useful metric that can help a business accurately track their inventory and sales on a given period of time.

In conclusion, absorption rate is an important metric to measure the performance of a real estate market. One cannot truly understand the market conditions, real estate property values, or adjust terms without being able to accurately measure the absorption rate.