The subject property is a townhome in a market area where 240 competing townhomes are listed for sale. Over the past 8 months, 120 competing townhomes sold. Market participants in the area regard a 6-month supply as balanced. If the sales pace holds, how many fewer listings would bring the market to a 6-month supply?
Correct Answer
C) 150 listings
The pace is 120/8 = 15 sales per month, so a 6-month supply equals 6 × 15 = 90 listings, and listings must fall by 240 − 90 = 150. Stopping at 90 reports the target inventory rather than the reduction. Subtracting the 120 sales from 240 gives 120 and leaves out the target. Reporting 240 gives the current inventory, a 16-month supply, rather than the change.
Why This Is the Correct Answer
Option C is correct because the pace is 120/8 = 15 sales per month and a 6-month supply at that pace equals 6 × 15 = 90 listings. With 240 listings now on the market, the reduction is 240 − 90 = 150 listings. As a check, 90/15 = 6 months.
Why the Other Options Are Wrong
Option A: 90 listings
Option A gives 90 listings, which is the inventory that remains at the target: 6 × 15 = 90. The question asks how many fewer listings are needed, and that is 240 − 90 = 150 listings.
Option B: 120 listings
Option B gives 120 listings, which comes from subtracting the 8-month sales total from the listings: 240 − 120 = 120. That leaves out the 6-month target; the correct result is 240 − (6 × 15) = 150 listings.
Option D: 240 listings
Option D gives 240 listings, which is the current inventory, not the reduction. At 120/8 = 15 sales per month, 240 listings is a 16-month supply; reaching a 6-month supply of 6 × 15 = 90 listings takes 240 − 90 = 150 fewer listings.
Pace times target, then subtract
Find the pace, multiply by the target months to get the inventory allowed, then subtract that from the listings on hand. Pace, target, gap is the order.
How to use: Use this sequence when a target months of supply is given and a change in listings is wanted.
Exam Tip
Read the final sentence closely: an inventory level and a change in inventory are different answers, and both can appear among the options. Convert the sales total to a monthly pace before applying the target.
Common Mistakes to Avoid
- -Reporting the target inventory as the reduction
- -Subtracting period sales from listings without applying the target
- -Reporting the current inventory as the reduction
Concept Deep Dive
Analysis
Months of supply is turned around here: the target supply is known and the change in listings is the unknown. Convert the 8-month sales total to a monthly pace, then multiply that pace by the target months to find the inventory the target allows. The last step is the one candidates skip: the reduction is what is asked, so the target inventory is subtracted from the current listings.
Background Knowledge
Months of supply is the ratio of listings to the monthly absorption rate, showing how long current inventory would last at the current rate of sales. Because it is a simple ratio, any one of its three parts can be solved when the other two are known. This lets an analyst translate a supply level into a concrete number of listings.
Real-World Application
An appraiser writing market commentary for a townhome assignment learns that local participants regard a 6-month supply as balanced. The appraiser converts recent sales to a monthly pace, multiplies by six, and reports the gap between that figure and current listings.
More Market Questions
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Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
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An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
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