A consistent competitive market segment has 112 sales over seven months and 128 current active listings. What are the average monthly absorption rate and months of inventory at that pace, respectively?
Correct Answer
D) Absorption 16 sales/month; inventory 8 months
Absorption = 112 sales/7 months = 16 sales per month. Months of inventory = 128 listings/(16 sales per month) = 8 months. The two measures have different units.
Why This Is the Correct Answer
Option D is correct because absorption = 112 sales / 7 months = 16 sales per month, and months of inventory = 128 listings / 16 sales per month = 8 months. The option lists them in the order the question asks.
Why the Other Options Are Wrong
Option A: Absorption 8 sales/month; inventory 16 months
Option A, absorption 8 sales/month and inventory 16 months, swaps the two results. The absorption rate is 112 / 7 = 16 sales per month and the inventory is 128 / 16 = 8 months, not the reverse.
Option B: Absorption 112 sales/month; inventory 7 months
Option B, absorption 112 sales/month and inventory 7 months, treats the seven-month sales total as a monthly figure and the seven-month period as the inventory. Dividing 112 by 7 gives 16 sales per month, and 128 / 16 gives 8 months.
Option C: Absorption 128 sales/month; inventory 16 months
Option C, absorption 128 sales/month and inventory 16 months, uses the active listing count as if it were sales and the absorption figure as inventory. Correctly, absorption is 112 / 7 = 16 sales per month and inventory is 128 / 16 = 8 months.
Sales over time, listings over pace
Absorption is sales over time; inventory is listings over that pace.
How to use: Use this pairing whenever a question asks for both absorption and months of supply.
Exam Tip
When two answers contain the same numbers in reversed order, check the units and the order the question requests.
Common Mistakes to Avoid
- -Swapping absorption and inventory results
- -Using total sales over the period as a monthly rate
- -Dividing listings by total sales instead of the monthly pace
Concept Deep Dive
Analysis
This question tests two related measures with different units. Absorption is sales divided by months, giving sales per month; months of inventory is listings divided by that monthly pace, giving months. The order of the answer matters: absorption first, then inventory.
Background Knowledge
Absorption rate measures how quickly properties sell in a market, while months of inventory measures how long current listings would last at that pace. Together they help indicate whether a market is in balance, oversupplied or undersupplied. Both rely on a consistent, competitive market segment.
Real-World Application
For a condo segment, an appraiser counts 112 closed sales over seven months and 128 active listings. She reports an absorption of 16 sales per month and 8 months of inventory to describe supply relative to demand.
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