A market where the median sale price is flat but the median price per square foot is rising suggests:
Correct Answer
A) A shift in the mix of homes sold should be checked before concluding
Different sample medians can diverge because of size, quality, location or other mix shifts. The statistics alone do not identify the exact mix change or prove appreciation of matched properties. Investigate composition and consistent-segment price evidence.
Why This Is the Correct Answer
Option A is correct because different sample medians can diverge when the size, quality or location mix of homes sold changes. The statistics alone do not prove appreciation or identify the exact change, so the composition of sales and consistent-segment price evidence should be checked first.
Why the Other Options Are Wrong
Option B: The comparable properties in this market are declining in value
Option B, that comparable properties are declining in value, does not follow because a rising price per square foot with a flat median price is not evidence of decline. Neither statistic alone establishes how matched properties are changing in value.
Option C: Construction costs in the market are proven to be falling
Option C, that construction costs are proven to be falling, is wrong because sale-price medians say nothing direct about construction costs. Nothing in these statistics proves a cost change.
Option D: The two medians are out of step, so one of them is miscalculated
Option D, that one median must be miscalculated, is wrong because two correctly calculated medians can move differently when the mix of homes sold shifts. Divergence is a signal to investigate, not proof of an error.
Check the mix first
When two medians disagree, ask what kinds of homes sold before concluding values changed.
How to use: Use this when summary statistics move in different directions in a market-trend question.
Exam Tip
Prefer answers that call for investigating the cause over answers that claim something is proven by a single statistic.
Common Mistakes to Avoid
- -Assuming a rising price per square foot proves appreciation
- -Assuming diverging medians mean a calculation error
- -Ignoring changes in the size or quality of homes sold
Concept Deep Dive
Analysis
This question tests interpretation of diverging summary statistics. A flat median sale price with a rising median price per square foot can arise when the homes selling are smaller or otherwise different, not only from appreciation. The sound conclusion is to investigate the mix of sales before deciding what the market is doing.
Background Knowledge
Median price and median price per square foot are affected by which properties sell in a period. If more small homes sell, price per square foot can rise while the overall median price stays flat. Housing trends should reflect properties competitive with the subject, so appraisers look at consistent segments or matched sales.
Real-World Application
An appraiser notices the area median price is flat while median price per square foot rose. Reviewing the sales, the appraiser finds more small condos sold this year than last. The appraiser then examines sales of homes similar to the subject to measure any real trend.
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Under Fannie Mae's Selling Guide, an appraiser reviews 20 recent one-unit sales in the subject's neighborhood: 2 at $285,000, 8 at $310,000, 6 at $345,000, 3 at $380,000 and 1 isolated sale at $900,000. What predominant price should be reported?
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