Question

What might a slow absorption rate for newly constructed apartment buildings indicate?

		There are other competing buildings that renters prefer.
		There is a shortage of vacant apartments in the local market.
		The local market demand exceeds local market supply.
		All of the above.
		None of the above.

An alternative to defining the market area by traditional boundaries is to “draw a circle” around the property at some given distance (say 2 miles). Which of the following factors influence the viability of this alternative?

		Population density
		Presence of waterways (lakes, rivers)
		The Local Transportation Network
		All of the Above
		None of the Above

Answer 1

Absorption Rate

Absorption rate is related to the real estate market, it shows how quickly or slowly the constructed buildings, apartments, and houses are selling.

The Formula for calculating the Absorption Rate is:

Absorption Rate = Average number of Sales per Month / Total number of Available Properties

A higher/faster absorption rate shows that the demand is exceeding the supply and therefore this is an ideal time to sell properties at a high price as the number of buyers are more than the number of sellers. And this is also called Seller's Market.

A lower/slow absorption rate may indicate that the supply or availiblity is more than the actual demand for them. so for a buyer this is an ideal time to purchase as there are many sellers and you have many choices. This type of market is called Buyer's Market.

Ordinarily, An absorption rate above 20% is a symptom of a seller's market in which properties are sold rapidly. An absorption rate below 15% is sign of a buyer's market in which properties are not being sold as fast.

Talking about the question asked, the aborption rate is slow, so this is the situation of Buyer's Market. Accordingly the supply will be greater than the demand in market, and we will have higher number of choices.

So if we talk about the options we have

1. There are other competing buildings that renters prefer: (Correct)

Surely, this options suits our question as the buyer have more preferences/choices. The supply in the market is greater than the demand, which a is sign of Buyer's Market. The buyers can buy at low prices as there are many number of sellers.

2. There is a shortage of vacant apartments in the local market.: (Incorrect)

If there will be shortage of the vacant apartments then it means supply is not up to mark as compared to demand. This will be a situation of Seller's Market. The sellers will sell properties at higher prices and buyer will have less choices.

3.The local market demand exceeds local market supply: (Incorrect)

A market where demand exceeds the supply is Seller's Market. Which mean a higher Aborption Rate. The available properties for sale will be less than the number of buyers looking to purchase properties.

4. All of the above: (Incorrect)

As option 2 and option 3 doesn't suits the given situation, so this option is not correct.

5. None of the above: (Incorrect)

It cannot be None of the above as option 1 is correct.

So the slow absorption rate for newly constructed apartment buildings indicates Option 1 (There are other competing buildings that renters prefer).