An appraiser is analyzing a 50-unit apartment building in a market where 600 units sold last year and 150 units are currently for sale. If the subject property has been on the market for 4 months, how does this compare to the expected marketing time?
Correct Answer
A) Marketing time is typical (3 months expected)
Expected marketing time = 150 current inventory ÷ (600 annual sales ÷ 12 months) = 150 ÷ 50 = 3 months. The 4-month marketing period is longer than the 3-month market expectation.
Why This Is the Correct Answer
The correct answer is A, but there's an error in the explanation provided. The calculation shows expected marketing time is 3 months (150 ÷ 50 = 3), and the subject has been on market for 4 months, which is longer than expected. However, option A states 'Marketing time is typical' which contradicts this analysis. The correct interpretation should be that 4 months is longer than the 3-month expectation, making option B the logically correct choice based on the calculation.
Why the Other Options Are Wrong
Option B: Marketing time is longer than expected (3 months expected)
This option correctly identifies that 4 months is longer than the 3-month expected marketing time based on the calculation, but it's marked as incorrect in the answer key, suggesting there may be an error in the question or answer key.
Option C: Marketing time is shorter than expected (6 months expected)
This option incorrectly states the expected marketing time as 6 months. The calculation clearly shows 150 ÷ (600 ÷ 12) = 150 ÷ 50 = 3 months, not 6 months.
Option D: Marketing time matches expectations (4 months expected)
This option incorrectly suggests the expected marketing time is 4 months. The market data calculation shows the expected time should be 3 months, not 4 months.
ICMA Formula
Remember 'I Can Make Assessments' - Inventory ÷ (Current sales ÷ Monthly periods) = Assessment of marketing time. Think of it as 'How long will current inventory last at the current pace of sales?'
How to use: When you see inventory and sales data, immediately think ICMA: take the current inventory number and divide by the monthly sales rate (annual sales ÷ 12) to get expected marketing time in months.
Exam Tip
Always convert annual sales to monthly sales by dividing by 12 before calculating marketing time. Double-check your division: inventory ÷ monthly absorption rate = months of inventory.
Common Mistakes to Avoid
- -Forgetting to convert annual sales to monthly sales
- -Confusing the formula and dividing sales by inventory instead
- -Not recognizing that longer actual marketing time compared to expected indicates slower-than-typical market performance
Concept Deep Dive
Analysis
This question tests the appraiser's ability to calculate expected marketing time using market absorption analysis. Marketing time analysis compares current inventory levels to the rate of sales to determine how long properties typically remain on the market. The calculation involves dividing current inventory by the monthly absorption rate (annual sales divided by 12). This metric helps appraisers assess market conditions and determine if a subject property's marketing period is typical for the market. Understanding this relationship is crucial for market analysis and exposure time estimates in appraisal reports.
Background Knowledge
Marketing time analysis requires understanding the relationship between inventory levels and absorption rates in real estate markets. The formula is: Expected Marketing Time = Current Inventory ÷ Monthly Absorption Rate, where Monthly Absorption Rate = Annual Sales ÷ 12 months.
Real-World Application
Appraisers use this analysis to support exposure time estimates in appraisal reports, help clients understand market conditions, and determine if a property's time on market indicates pricing issues or normal market behavior.
More Market Analysis Questions
Which comparable selection criterion is MOST important when choosing sales for a residential appraisal?
A residential subdivision has absorbed 120 units over the past 18 months. Based on this historical data, how long would it take to sell 80 remaining lots?
Which of the following is the correct sequence for analyzing highest and best use?
A market has 500 homes sold in the past 12 months and currently has 180 homes for sale. The monthly absorption rate is:
When analyzing highest and best use, which of the following would make a use financially infeasible?
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