A multiple regression of 240 recent sales of detached homes in the subject's market area includes gross living area, lot size, age, bathrooms and garage spaces. The coefficient for gross living area is $58. What does this coefficient indicate?
Correct Answer
B) The price change for each added square foot, all else held constant
In a multiple regression, a variable's coefficient estimates its contributory value with the other variables held constant, so $58 is the price change per square foot of gross living area and can serve as a size adjustment. It is not the overall average price per square foot, which also includes land and every other feature, nor a construction cost or a measure of how much of the price variation the model explains.
Why This Is the Correct Answer
Option B is correct because a multiple regression coefficient estimates the contributory value of one element of comparison with the other variables held constant. A GLA coefficient of $58 means each added square foot of living area adds about $58 to price.
Why the Other Options Are Wrong
Option A: The average sale price per square foot of the homes in the data
Option A treats $58 as the average sale price per square foot. Average price per square foot spreads the land, garage and every other feature over the living area, so it is usually much higher than the marginal contribution of one more square foot.
Option C: The cost to build one more square foot of living area in this market
Option C reads $58 as the cost to build a square foot. A regression of sale prices measures what buyers pay, which may differ from construction cost.
Option D: The share of the variation in sale prices that living area explains
Option D describes how much of the price variation a variable or model explains, a goodness-of-fit idea. The coefficient is a dollar amount per unit of the variable, not a share of variation.
Coefficient means dollars per unit
Read a coefficient as the price change for one more unit of that feature, everything else held still.
How to use: Use this to translate any regression coefficient into an adjustment.
Exam Tip
Do not confuse a GLA coefficient with average price per square foot; the coefficient is a marginal rate.
Common Mistakes to Avoid
- -Treating the coefficient as average price per square foot
- -Confusing the coefficient with a measure of model fit
Concept Deep Dive
Analysis
The question tests what a regression coefficient means. In a model with several property characteristics, each coefficient isolates the contribution of one characteristic while the others are held constant, which is why the GLA coefficient can be used as a dollars-per-square-foot adjustment.
Background Knowledge
Regression relates sale prices to property characteristics across many sales. With an adequate database, it can estimate the contributory value of selected elements of comparison without the strict similarity paired sales require.
Real-World Application
An appraiser in a tract with hundreds of similar sales runs a regression to support the size adjustment. The GLA coefficient becomes the per-square-foot rate in the grid, and the appraiser describes the data and method in the report.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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A comparable sold at a cash-equivalent price of $538,000 exactly 6 months before the effective date. Market prices have declined at a compound rate of 0.6% per month. No other adjustments apply. What is the time-adjusted price, to the nearest dollar?
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