A consistent competitive market segment has 180 active listings and 30 closed sales during the latest 1-month window. Using that window’s average monthly sales pace, what months of inventory are indicated? Round to one decimal place.
Correct Answer
C) 6.0 months
Monthly sales = 30/1 = 30; months of inventory = 180/(30/1) = 6.0 months. Keep the stated numerator, denominator and units distinct. Common errors: subtracting the month’s sales from the listings first gives 5.0 months; treating the month’s 30 sales as a 12-month total gives 72.0 months; converting the answer to years gives 0.5 months.
Why This Is the Correct Answer
Option C is correct because the monthly sales pace is 30/1 = 30 sales per month. Months of inventory equals total listings divided by the absorption rate, so 180/30 = 6.0 months. This shows how long current listings would last at the current sales pace.
Why the Other Options Are Wrong
Option A: 0.5 months
Option A, 0.5 months, converts the answer to years: 180/30/12 = 0.5. That figure is in years, not months; the months of inventory is 180/30 = 6.0 months.
Option B: 5.0 months
Option B, 5.0 months, subtracts the month's sales from the listings first: (180 − 30)/30 = 5.0. The formula uses the full 180 active listings, giving 180/30 = 6.0 months.
Option D: 72.0 months
Option D, 72.0 months, treats the 30 sales as a 12-month total: 30/12 = 2.5 per month, and 180/2.5 = 72.0. The 30 sales closed in a single month, so the pace is 30 per month and the supply is 180/30 = 6.0 months.
Listings over monthly sales
Months of supply equals listings divided by sales per month. First convert total sales to a monthly pace.
How to use: Use this formula for any months-of-inventory or absorption-time question.
Exam Tip
Convert sales to a monthly pace before dividing. Check that your answer is in months, not years.
Common Mistakes to Avoid
- -Subtracting sales from listings before dividing
- -Treating one month's sales as an annual total
- -Expressing the result in years instead of months
Concept Deep Dive
Analysis
This question tests the months-of-inventory calculation. First find the monthly sales pace (30 sales in 1 month = 30 per month), then divide active listings by that pace: 180/30 = 6.0 months. Do not alter the listing count or convert the answer to another time unit.
Background Knowledge
The absorption rate is the rate at which properties sell or lease in a market over a given period. Months of supply is total listings divided by the absorption rate. Appraisers use it to judge whether a market is tight, balanced or oversupplied, interpreted against local history.
Real-World Application
An appraiser finds 180 active listings and 30 closed sales in the most recent month for a competitive segment. That indicates about 6 months of inventory. The appraiser compares this with prior months to judge whether supply is growing or shrinking.
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