A market conditions adjustment derived from median prices shows a 9 percent annual rise, but resale pairs show 4 percent. What is the likely explanation?
Correct Answer
D) The mix of properties sold has shifted over time
Why this is correct: The mix of properties sold has shifted over time. The governing concept is the difference between median price change and paired-sale analysis. Median price can rise because larger or higher-quality homes are being sold (a change in mix), not because individual properties appreciate. Resale pairs track the same property over time, isolating pure price change. Why the other choices are wrong: The resale pairs must contain a recording error is an assumption not supported by the facts. The medians are always the more reliable measure is false; for measuring pure appreciation, paired sales are superior. Nine percent should be adopted as the higher figure is wrong without analysis; the lower paired-sale figure may be more accurate for the subject property. Exam tip: For time adjustments, paired sales are better than median price trends because they control for changes in the quality mix of sold properties.
Why This Is the Correct Answer
A shift in the mix of properties sold is the standard explanation for a median outrunning a repeat-sales measure, and it is the one the data pattern most directly implies. Median statistics are unadjusted for size, quality, age, and location composition, so they conflate appreciation with compositional change. Repeat-sales pairs control for those variables by construction, which makes the 4 percent figure the better estimate of pure market movement for a comparable property. Before adopting either figure, the appraiser should confirm the pairs contain no renovations between transactions, since a renovated resale overstates market movement in the other direction.
Why the Other Options Are Wrong
Option A: The resale pairs must contain a recording error
Recording errors happen, but positing one to explain a systematic divergence between two whole datasets is an extraordinary claim resting on nothing in the facts. A single erroneous record would not shift a paired analysis by five percentage points unless the sample were extremely small. The option substitutes a data-quality accusation for an analytical explanation that is readily available.
Option B: The medians are always the more reliable measure
Medians are useful as a broad indicator and are easy to compute from public data, but for measuring appreciation on a specific property they are inferior to paired analysis precisely because they do not hold the property constant. The word always is unsupportable in either direction. Reliability depends on what is being measured, and here the question is pure price movement.
Option C: Nine percent should be adopted as the higher figure
Choosing the higher figure because it is higher is not analysis, and it would build an upward bias into every market conditions adjustment the appraiser makes. USPAP's development requirements call for analyzing and reconciling the data, not selecting the most favorable output. Adopting a rate without resolving why two measures disagree leaves the conclusion unsupported.
Same House or Different Houses
Ask what changed between the two periods being compared. A median compares different houses at two moments, so the mix can move it. A resale pair compares the same house to itself, so only the market and the property can move it.
How to use: Whenever two market indicators disagree, name what each one holds constant. Choose the explanation rooted in that difference rather than an option that dismisses one dataset or simply picks the larger number.
Exam Tip
Watch the direction of the divergence. A median running above paired sales suggests the mix shifted upmarket; a median running below suggests the mix shifted down, which happens when entry-level or distressed product dominates.
Common Mistakes to Avoid
- -Using an unsegmented median as a market conditions adjustment rate
- -Failing to screen resale pairs for renovations between the two transactions
- -Selecting between conflicting indicators without explaining the divergence
Concept Deep Dive
Analysis
Median price change and repeat-sales analysis measure two genuinely different things, and confusing them is one of the most common analytical errors in market conditions work. A median is the middle value of whatever sold in a period, so it moves when the composition of sales changes, not only when individual properties change in value. If builders delivered larger homes, if the low end froze out because financing tightened, or if a new upscale subdivision came online, the median rises even in a flat market. A resale pair, by contrast, tracks the same physical property across two transactions, holding location, lot, and layout constant, so the difference between the two prices isolates market movement and any change in the property itself. When the median says 9 percent and the pairs say 4 percent, the most probable explanation is that the mix of what sold shifted toward higher-priced product. The appraiser should investigate the mix before choosing a rate, because the wrong choice biases every comparable in the grid.
Background Knowledge
You need the difference between measures of central tendency and repeat-sales indices, the concept of compositional or mix shift, and the mechanics of paired sales analysis. You should also know that median statistics can be improved by segmenting on size, product type, and price tier, or by using price per square foot in a homogeneous market.
Real-World Application
An appraiser finds county medians up 9 percent while her own resale pairs show 4 percent. Checking new construction records, she sees a builder delivered eighty homes averaging 700 square feet larger than the existing stock. She adopts the paired-sales rate, segments the median by size to confirm, and documents the mix shift in her market analysis.
More Statistics Questions
A set of comparable sales has a mean of $250,000 and a standard deviation of $20,000. What is the coefficient of variation?
A property sold for $400,000 and resold three years later for $463,050 with no physical change. What compound annual rate does this indicate?
A histogram of neighborhood sale prices shows two distinct peaks. What does this most likely mean?
What does it mean to validate a regression model?
In a market study, what does a frequency distribution of sale prices show?
An appraiser includes months elapsed since each sale as a variable in a price model. What is this intended to capture?
An appraiser presents a statistical analysis in a report. What must accompany it for the reader to weigh it?
An R-squared of 0.86 in a sales model indicates that:
Which measure would best summarize the most common lot size in a subdivision?
Paired sales analysis and regression differ mainly in that regression:
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