A luxury segment recorded 12 closed sales over three months and has 8 pending contracts. Using only completed sales for this historical measure, what is the average closed-sales rate per month?
Correct Answer
A) 4 homes per month
Historical closed-sales velocity = 12 closed sales / 3 months = 4 homes/month. Use the same population, period and price/listing definition throughout. Common errors: reporting the quarter’s total sales gives 12 homes per month; including the pending contracts gives 7 homes per month; multiplying by the months instead of dividing gives 36 homes per month.
Why This Is the Correct Answer
Option A is correct because the historical closed-sales velocity equals 12 closed sales / 3 months = 4 homes per month. The stem limits the measure to completed sales, so pending contracts are excluded. Dividing by the number of months converts the period total to a monthly rate.
Why the Other Options Are Wrong
Option B: 7 homes per month
Option B, 7 homes per month, includes the pending contracts: (12 + 8) / 3 = 6.67, about 7. The measure uses closed sales only, so 12 / 3 = 4 homes per month.
Option C: 12 homes per month
Option C, 12 homes per month, reports the three-month total as if it were one month's figure. Dividing by 3 months gives 4 homes per month.
Option D: 36 homes per month
Option D, 36 homes per month, multiplies by the months instead of dividing: 12 x 3 = 36. The monthly rate is 12 / 3 = 4 homes per month.
Closed Count Over Months
For a historical sales rate, count only what closed and divide by the number of months.
How to use: Use this rule when a stem mixes closed sales with pending contracts.
Exam Tip
Read the stem for which data to include; when it says completed sales only, leave pending contracts out of the calculation.
Common Mistakes to Avoid
- -Adding pending contracts to closed sales
- -Reporting the period total as a monthly rate
- -Multiplying by months instead of dividing
Concept Deep Dive
Analysis
This question tests computing a historical closed-sales rate while excluding pending contracts. Only the 12 completed sales count, and they occurred over 3 months, giving 4 homes per month. The 8 pending contracts are not closed sales and are left out of this historical measure.
Background Knowledge
Absorption rate is the rate at which properties sell in a market over a given period, and Form 1004MC computes it as total sales divided by months. Pending contracts show current activity but are not completed sales. Keeping closed and pending data separate makes each measure clear.
Real-World Application
An appraiser studying a luxury segment finds 12 closings in the past three months and 8 pending contracts. The appraiser reports 4 closed sales per month as the historical rate and discusses the pending contracts separately as a sign of current demand.
More Market Questions
Market analysis confirms that seller financing at 3%, versus a 6% market rate, increased a comparable sale price. What adjustment removes that financing premium?
At the same effective date, reliable value indications support $800,000 for continued use of a property as improved and $500,000 for its cleared site. Immediate demolition costs $100,000. These are the only feasible alternatives, with no other costs or timing differences. Which alternative has the higher net value?
Other relevant conditions equal, growth in the number of households with effective purchasing power in a market tends to have which effect?
In a lakefront market, paired sales show that direct water frontage has the largest price effect of any feature. Which approach to comparable selection best follows from this evidence?
Which circumstance can cause highest and best use as improved to differ from highest and best use as though vacant?
A small group of buyers in a market looks for specialized features that are uncommon in the broader housing supply. What term describes this group?
A neighborhood analysis should include all of the following EXCEPT:
A site legally permits at most 40 units and can physically support 50. Supported comparable analyses find 30 and 40 units financially feasible, with 40 units producing the highest net land value after costs, timing and required return. Which use is maximally productive among these alternatives?
Market evidence isolates a subject value loss from off-site landfill odors. Which listed cause is an external-obsolescence influence?
Which proposed use cannot pass the legal-permissibility screen without evidence that the necessary permission is reasonably probable?
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
Previous Question
The financially feasible test in highest and best use analysis determines whether:
Next Question
A property has two lawful and feasible uses. Annual net operating income (NOI) attributable to the real estate is $180,000 in the current use and $220,000 in the alternative use. The capitalization rate for both uses is 10%. Converting to the alternative would happen immediately at a total cost of $300,000, with no delays or other costs. What is the net indicated value of the alternative use after conversion costs?