Which datum is not needed to compute an observed historical closed-sales-per-month rate for a defined competitive segment?
Correct Answer
D) The original construction expenditure
A directly observed historical units-per-month rate uses the number of closed sales in the defined segment and period, divided by the number of months observed; closing dates determine which sales fall in the period. Historical construction cost is not part of that past rate, although it may matter for other market decisions.
Why This Is the Correct Answer
Option D is correct because the original construction expenditure is not part of a historical closed-sales-per-month rate. That rate uses the closed-sales count and the number of months observed, with closing dates deciding which sales fall in the period. Construction cost may matter for other decisions but not for this past rate.
Why the Other Options Are Wrong
Option A: The closed-sales count in the defined period
Option A, the closed-sales count in the defined period, is wrong because that count is the numerator of the rate. Without it, there is nothing to divide.
Option B: The number of months observed in the study
Option B, the number of months observed, is wrong because that figure is the divisor that turns a total count into a per-month rate.
Option C: The closing dates used to place each sale in the period
Option C, the closing dates used to place each sale in the period, is wrong because the dates determine which sales are counted in the study period. They are needed to compute the rate accurately.
Sales over months
A sales-per-month rate needs only sales counted and months counted, with dates to sort them. Cost is not in the formula.
How to use: Use this when a question asks which data feed a historical absorption rate.
Exam Tip
Picture the formula; any item that does not appear in the numerator, the denominator or the period definition is the one not needed.
Common Mistakes to Avoid
- -Including construction cost in an absorption rate
- -Forgetting to define the study period by closing date
- -Treating a historical rate as a forecast
Concept Deep Dive
Analysis
This question tests what goes into a historical absorption rate. An observed closed-sales-per-month rate is the number of closed sales in a defined segment divided by the number of months observed. Closing dates are needed to place sales in the period, but past construction cost plays no part in that calculation.
Background Knowledge
Absorption rates show how quickly a market segment sells. Combined with active inventory, a historical rate can help estimate months of supply, but it is an observed past figure rather than a prediction.
Real-World Application
An appraiser studying a townhome segment counts 24 closed sales over the past 12 months using closing dates. She reports an observed rate of 2 sales per month and compares it with current listings to discuss supply.
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A site legally permits at most 40 units and can physically support 50. Supported comparable analyses find 30 and 40 units financially feasible, with 40 units producing the highest net land value after costs, timing and required return. Which use is maximally productive among these alternatives?
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