A model built on condominium sales is applied to a detached house. What is wrong?
Correct Answer
A) The model was fitted to a different property type
Why this is correct: A regression model's coefficients are derived from and specific to the population of data used to create it. Applying a model built on condominium sales to a detached house constitutes applying it to a different property type (a different population), which is invalid because the market behaviors and value drivers are not the same. Why the other choices are wrong: While detached houses might require a different sample size, that is not the core issue here. R-squared can be computed, but it would be meaningless. The intercept is part of the model and is not recalculated for each subject. Exam tip: A regression model is only valid for the population from which the sample was drawn. Don't apply it to different property types or markets.
Why This Is the Correct Answer
Why this is correct: A regression model's coefficients are derived from and specific to the population of data used to create it. Applying a model built on condominium sales to a detached house constitutes applying it to a different property type (a different population), which is invalid because the market behaviors and value drivers are not the same. Why the other choices are wrong: While detached houses might require a different sample size, that is not the core issue here. R-squared can be computed, but it would be meaningless. The intercept is part of the model and is not recalculated for each subject. Exam tip: A regression model is only valid for the population from which the sample was drawn. Don't apply it to different property types or markets.
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