A commercial property analysis shows the following data for the past year: 24 properties sold, average days on market was 120 days, and there are currently 30 properties listed for sale. What is the estimated marketing time for a typical property?
Correct Answer
C) 150 days
With 24 sales per year, the absorption rate is 2 per month. With 30 current listings, months of supply = 30 ÷ 2 = 15 months = 450 days. However, the historical average of 120 days should be adjusted upward due to increased inventory, suggesting approximately 150 days.
Why This Is the Correct Answer
Option C is correct because it properly accounts for both historical data and current market conditions. The calculation shows 24 sales per year equals 2 sales per month (absorption rate), and with 30 current listings, there's a 15-month supply (450 days theoretically). However, the historical average of 120 days serves as a baseline that must be adjusted upward due to the heavy inventory, resulting in approximately 150 days. This represents a reasonable adjustment that reflects the impact of increased supply on marketing time.
Why the Other Options Are Wrong
Option A: 90 days
90 days is incorrect because it's lower than the historical average of 120 days, which doesn't make sense given the current heavy inventory of 30 listings. With increased supply in the market, marketing times should be longer, not shorter than historical averages.
Option B: 120 days
120 days represents only the historical average and fails to account for current market conditions. With 30 properties currently listed and only 2 sales per month historically, the increased inventory suggests marketing times will be longer than the past average.
Option D: 180 days
180 days overadjusts the historical data. While the heavy inventory does suggest longer marketing times, 180 days represents a 50% increase over the historical average, which is excessive given that the market is still functioning with regular sales activity.
HAM Method
HAM = Historical + Adjustment + Market conditions. Start with Historical average, make an Adjustment based on current inventory levels, and consider overall Market conditions to reach a reasonable estimate.
How to use: When you see marketing time questions, remember HAM: look for the historical average days on market, calculate if current inventory suggests an adjustment is needed, and apply market judgment to determine the final estimate.
Exam Tip
Always look for both historical sales data and current inventory levels in marketing time questions. The answer typically requires adjusting historical averages based on current market supply conditions.
Common Mistakes to Avoid
- -Using only historical average without considering current inventory
- -Calculating theoretical months of supply without adjusting for market realities
- -Over-adjusting historical data without considering continued market activity
Concept Deep Dive
Analysis
This question tests understanding of market analysis and marketing time estimation for commercial properties. Marketing time estimation requires analyzing both historical sales data (absorption rate) and current market conditions (inventory levels). The appraiser must calculate the absorption rate from past sales, determine months of supply from current inventory, and adjust the historical average days on market based on current market conditions. This involves understanding that increased inventory typically leads to longer marketing times than historical averages would suggest.
Background Knowledge
Marketing time estimation requires understanding absorption rates (sales per time period), months of supply calculations (current inventory ÷ absorption rate), and how current market conditions affect historical averages. Appraisers must balance mathematical calculations with market judgment to provide realistic marketing time estimates.
Real-World Application
In practice, appraisers use marketing time analysis to support their exposure time estimates in appraisal reports. This analysis helps clients understand realistic timeframes for selling properties and supports the appraiser's market value conclusion by demonstrating market conditions.
More Market Analysis Questions
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