A consistent market of individually sold comparable units recorded 600 closed sales in 12 months and has 150 active listings. What months-of-inventory statistic is indicated, and what does it establish about one listing unsold after four months?
Correct Answer
A) Three months of supply; it alone does not show that listing is overpriced
The stipulated compatible-unit sales pace is 600/12=50 units/month. Inventory duration=150/50=3 months. A four-month individual listing duration cannot be declared abnormal from that stock/flow statistic alone; individual marketing-time analysis needs appropriate competitive and price evidence. Dividing the 150 listings by the 600 annual sales instead of the monthly pace would wrongly give 0.25.
Why This Is the Correct Answer
Option A is correct because 600 sales over 12 months is 50 per month, and 150 listings divided by 50 per month is 3 months of supply. That statistic describes the overall market, so by itself it does not prove a four-month listing is overpriced; that would need competitive and price evidence for that listing.
Why the Other Options Are Wrong
Option B: Three months of supply; each listing will sell within three months
Option B gets the three months of supply right but wrongly claims each listing will sell within three months. Months of supply is an aggregate measure of inventory against the sales pace, not a promise about how long any individual listing will take.
Option C: Four months of supply, because one listing has lasted four months
Option C, four months of supply because one listing has lasted four months, is wrong because one listing's time on market does not set the market's supply. The correct figure is 150 listings / (600 / 12 = 50 sales per month) = 3 months.
Option D: One-quarter month of supply; that listing is far slower than the market
Option D, one-quarter month of supply, divides the 150 listings by the 600 annual sales (150 / 600 = 0.25) instead of by the monthly pace. The correct calculation is 600 / 12 = 50 sales per month and 150 / 50 = 3 months, and the market statistic alone does not show that one listing is unusually slow.
Listings over monthly sales
Turn sales into a per-month pace first, then divide the listings by that pace to get months of supply.
How to use: Use this order whenever you compute months of supply from annual or quarterly sales counts.
Exam Tip
Be cautious of options that turn a market-wide statistic into a firm prediction or diagnosis for one property, and convert annual sales to a monthly pace before dividing.
Common Mistakes to Avoid
- -Dividing listings by total annual sales instead of the monthly pace
- -Treating months of supply as a guaranteed selling time for each listing
- -Concluding a listing is overpriced from the market statistic alone
Concept Deep Dive
Analysis
This question tests two steps: calculating months of supply from a sales pace and inventory, and knowing what that market-wide statistic can and cannot tell you about one listing. The absorption rate is total sales divided by months, and months of supply is listings divided by that rate. A market-level stock/flow figure does not by itself diagnose why one particular listing has not sold.
Background Knowledge
The absorption rate is total sales divided by months, and months of housing supply is total listings divided by the absorption rate. These statistics describe the balance of inventory and demand in the market as a whole. Conclusions about an individual property's marketing time or pricing need evidence specific to that property and its competition.
Real-World Application
A listing agent argues that a home unsold after four months must be overpriced because the market shows three months of supply. The appraiser notes that the statistic is market-wide and reviews the home's competing listings, condition and pricing before drawing any conclusion.
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