On Form 1004MC, the current three months show 18 comparable settled sales and 42 comparable active listings. Using the form’s definitions, what is the months of housing supply?
Correct Answer
C) 7.0 months
Absorption rate = total sales ÷ months = 18 ÷ 3 = 6 per month. Months of housing supply = total listings ÷ absorption rate = 42 ÷ 6 = 7.0 months.
Why This Is the Correct Answer
Option C is correct because the absorption rate is 18 sales / 3 months = 6 per month, and months of housing supply is 42 listings / 6 per month = 7.0 months.
Why the Other Options Are Wrong
Option A: 2.3 months
Option A, 2.3 months, divides listings by total sales (42 / 18 = 2.3) instead of by the monthly absorption rate. The correct calculation is 42 / (18 / 3 = 6) = 7.0 months.
Option B: 14.0 months
Option B, 14.0 months, divides listings by the number of months (42 / 3 = 14.0) instead of by the absorption rate. The correct calculation is 42 / 6 = 7.0 months.
Option D: 0.4 months
Option D, 0.4 months, inverts the ratio by dividing sales by listings (18 / 42 = 0.4). Months of supply is listings divided by the monthly sales rate: 42 / 6 = 7.0 months.
Sales per month, then listings
Find sales per month first, then ask how many months those listings would take at that pace.
How to use: Use this sequence for any months-of-supply calculation on Form 1004MC.
Exam Tip
Write out both form definitions before calculating; the wrong answers come from using total sales, months or an inverted ratio.
Common Mistakes to Avoid
- -Dividing listings by total sales rather than sales per month
- -Dividing listings by the number of months
- -Inverting the ratio to sales over listings
Concept Deep Dive
Analysis
This question tests the two-step Form 1004MC calculation. First the absorption rate is found as total sales divided by months, then months of housing supply is total listings divided by that rate. Each distractor comes from skipping or reversing one of those steps.
Background Knowledge
Form 1004MC defines absorption rate as total sales divided by months and months of housing supply as total listings divided by the absorption rate. The results help the appraiser describe whether supply is tight or ample in each reporting period.
Real-World Application
In preparing a 1004MC, an appraiser finds 18 comparable sales in the current three-month period and 42 active listings. The appraiser reports an absorption rate of 6 per month and 7.0 months of housing supply, and comments on how this compares with earlier periods.
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