A market has 96 active listings absorbing at 12 units per month. Months of supply is:
Correct Answer
B) 8 months
Why this is correct: Months of supply = Active Listings ÷ Absorption Rate. Here, 96 active listings ÷ 12 units/month = 8 months of supply. This indicates a balanced or slightly buyer-favorable market. Why the other choices are wrong: '12 months' incorrectly uses the absorption rate as the answer. '96 months' incorrectly uses the number of listings as the answer. '1,152 months' results from multiplying 96 by 12, which is not the correct formula. Exam tip: Months of Supply tells you how long it would take to sell current inventory at the current sales pace.
Why This Is the Correct Answer
Ninety-six listings divided by an absorption rate of 12 units per month equals 8 months of supply. The units confirm the operation: units divided by units per month leaves months. Eight months means the standing inventory would take two-thirds of a year to clear if no new listings arrived and the pace held. That figure supports a conclusion of adequate to slightly excess supply rather than scarcity.
Why the Other Options Are Wrong
Option A: 12 months
Twelve months restates the absorption rate as though it were the answer, which confuses a flow with a duration. Twelve units sold per month and twelve months of supply are entirely different quantities that happen to share a numeral. The error comes from grabbing a figure out of the stem without performing the division.
Option C: 96 months
Ninety-six months restates the inventory count, treating a stock of listings as a period of time. It would imply eight years to clear the market, which nothing in the facts suggests. Like the previous distractor, it is produced by copying rather than computing.
Option D: 1,152 months
One thousand one hundred fifty-two multiplies 96 by 12 instead of dividing. Multiplication has no meaning here, since it would combine a stock and a flow into a quantity with no interpretation. A units check catches it instantly, and so does the implausibility of a 96-year supply.
Stock Over Flow Equals Time
Inventory is a stock, a photograph of what sits on the shelf. Absorption is a flow, how fast the shelf empties. Divide the photograph by the flow and you get time. Multiplying them produces a number with no meaning at all.
How to use: Write the units next to each figure before computing: 96 units, 12 units per month. Cancel the units and the operation reveals itself, leaving months as the only possible answer form.
Exam Tip
When two distractors simply restate numbers from the stem, that is a signal the item is testing whether you performed an operation at all. Compute before scanning the choices.
Common Mistakes to Avoid
- -Confusing absorption rate with months of supply
- -Multiplying inventory by absorption instead of dividing
- -Computing absorption from a single month rather than a trailing average
Concept Deep Dive
Analysis
Absorption rate and months of supply are two views of the same relationship between inventory and sales pace. The absorption rate states how many units the market takes up per period, here 12 units per month, while months of supply states how long the standing inventory would last at that pace. The conversion is inventory divided by absorption, so 96 divided by 12 gives 8 months. Keeping the units straight is the whole discipline: listings are a stock measured at a point in time, absorption is a flow measured over a period, and dividing a stock by a flow yields time. Eight months sits above the roughly five to seven month balanced band, which points toward a mildly buyer-favorable market, though the appraiser should compare that figure to the same market's own history and to the norms for the property type before drawing a conclusion.
Background Knowledge
You need the relationship among inventory, absorption rate, and months of supply, and the habit of tracking units through a calculation. You should also know the conventional interpretive bands for months of supply and the caution that they vary by property type and market.
Real-World Application
An appraiser analyzing a condominium submarket counts 96 active units and finds closings averaging 12 per month over the trailing six months. She reports eight months of supply, compares it to the four months prevailing a year earlier, and supports a small downward market conditions adjustment with the trend.
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