An appraiser is completing the One-Unit Housing Trends portion of an appraisal report on a detached house for a loan to be sold to Fannie Mae. Interviews show that detached-house buyers and condominium buyers in the neighborhood do not compete. The neighborhood has 120 active listings, 30 of them condominiums. Over the past 12 months, 168 sales closed, 48 of them condominiums. What months of housing supply is indicated for the subject?
Correct Answer
C) 9.0 months
Competitive detached listings are 120 − 30 = 90 and competitive detached sales are 168 − 48 = 120, or 120/12 = 10 per month, so supply is 90/10 = 9.0 months. Both sides of the ratio must describe the same competitive properties. Removing condominiums from the listings alone gives 90/14 = 6.4 months, and removing them from the sales alone gives 120/10 = 12.0 months. Using the unfiltered neighborhood totals gives 120/14 = 8.6 months, which looks close but mixes two separate markets.
Why This Is the Correct Answer
Option C is correct because the competitive detached listings are 120 − 30 = 90 and the competitive detached sales are 168 − 48 = 120. The pace is 120/12 = 10 per month, so supply is 90/10 = 9.0 months. Listings and sales both reflect the properties competitive with the subject.
Why the Other Options Are Wrong
Option A: 6.4 months
Option A gives 6.4 months, which comes from removing condominiums from the listings but leaving them in the sales: 90/(168/12) = 90/14 = 6.4. Condominium sales do not absorb detached listings here, so the pace is 120/12 = 10 and supply is 9.0 months.
Option B: 8.6 months
Option B gives 8.6 months, which comes from the unfiltered totals: 120/(168/12) = 120/14 = 8.6. The figure is near the correct result, but it blends condominiums into a detached-house analysis; the competitive calculation is 90/10 = 9.0 months.
Option D: 12.0 months
Option D gives 12.0 months, which comes from removing condominiums from the sales but leaving them in the listings: 120/(120/12) = 120/10 = 12.0. Condominium listings are not competing supply here, so the count is 90 and supply is 90/10 = 9.0 months.
Filter both sides of the fraction
Whatever you remove from the listings on top, remove from the sales on the bottom. A fraction with mismatched groups describes no real market.
How to use: Use this rule whenever a data set contains property types that do not compete with the subject.
Exam Tip
After filtering, confirm that the listing count and the sales count describe the same property type. A figure close to the key can still come from unfiltered data, so work the calculation through rather than estimating.
Common Mistakes to Avoid
- -Removing non-competing properties from the listings and not from the sales
- -Removing non-competing properties from the sales and not from the listings
- -Using neighborhood totals because the result seems close enough
Concept Deep Dive
Analysis
The ratio must rest on one consistent set of competitive properties. Buyer evidence removes condominiums from the subject's competitive market, so they leave both the numerator and the denominator. Filtering one side produces a figure that belongs to no real market, and the unfiltered total can land close to the right answer while resting on the wrong data.
Background Knowledge
Fannie Mae's Selling Guide calls for neighborhood housing trends that reflect properties competitive with the one being appraised. Market participants' behavior determines which properties compete, rather than a shared location. Any supply measure drawn from those data needs its numerator and denominator taken from the same competitive group.
Real-World Application
An appraiser's MLS search for a detached house's neighborhood returns condominiums as well, and buyer interviews show the two groups shop separately. The appraiser reruns the listing and closed-sales counts for detached houses, so the market conditions analysis reflects the subject's actual competition.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam