A lender appraisal must estimate the timing of sales receipts for 42 remaining finished lots. A supported conditional sales pace is six lots per month. Which analysis addresses this specific timing task?
Correct Answer
C) Absorption analysis of the sell-out period
A sellout/absorption analysis estimates how receipts from remaining lots may be timed. At the stipulated six-lot monthly pace, 42 lots imply seven months, conditional on no change in supply or demand. That does not by itself prove HBU or replace feasibility and discounted cash-flow analysis.
Why This Is the Correct Answer
Option C is correct because an absorption analysis of the sell-out period estimates how sales receipts from the remaining lots will be spread over time. At six lots per month, 42 lots / 6 = 7 months, conditional on no change in market conditions.
Why the Other Options Are Wrong
Option A: Highest and best use analysis
Option A, highest and best use analysis, is wrong because it identifies the most productive use of the property but does not by itself time the sale of remaining lots.
Option B: Feasibility rent analysis
Option B, feasibility rent analysis, is wrong because these are lots for sale, and the task is to time sale receipts, not to test rents.
Option D: A depreciation breakdown analysis of the lots
Option D, a depreciation breakdown analysis of the lots, is wrong because depreciation analysis concerns loss in value of improvements and does not project a sales schedule.
Absorption tells when
Absorption analysis answers how fast inventory sells, and therefore when the money comes in.
How to use: Use this when a question asks about timing of sales or sell-out periods.
Exam Tip
Match the analysis to the task: timing of sales points to absorption, not to HBU or depreciation.
Common Mistakes to Avoid
- -Treating HBU analysis as a timing tool
- -Assuming the sell-out pace will hold regardless of market changes
- -Applying depreciation analysis to vacant lots
Concept Deep Dive
Analysis
This question tests which analysis estimates the timing of sales receipts from remaining lots. An absorption, or sell-out, analysis projects how fast the remaining lots will sell. At the stated pace of six lots per month, 42 lots imply a seven-month sell-out, assuming supply and demand do not change.
Background Knowledge
Absorption analysis estimates the rate at which properties of a given type can be sold or leased in a market. For subdivisions, the sell-out period helps the appraiser schedule cash flows, which may then be discounted. Similar projects are commonly studied to support the absorption estimate.
Real-World Application
A lender needs a bulk value for 42 unsold lots in a subdivision. The appraiser studies sales pace at competing projects, supports a rate of six lots per month and schedules receipts over about seven months before discounting.
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