A regression model of 400 sales returns a coefficient of $62 per square foot of GLA. Before using it, the appraiser should confirm:
Correct Answer
B) That the sample reflects the subject's market and property type
Why this is correct: Before using a regression coefficient, confirm the sample data reflects the subject's market segment and property type. A coefficient from dissimilar data is unreliable. Why the other choices are wrong: That the model included every property sold in the entire county is unnecessary and may mix dissimilar markets. That the coefficient matches the local cost manual's figure exactly is irrelevant; cost and market value differ. That the software vendor certifies the model for lender use doesn't ensure applicability. Exam tip: Always vet the data behind any statistical model you use.
Why This Is the Correct Answer
Option B is correct because the essential test is whether the sample reflects the subject's market and property type. A coefficient derived from relevant, homogeneous data speaks to how buyers of properties like the subject actually price living area; one derived from a mixed sample does not. Verifying relevance also means checking that the subject's size falls within the sampled range and that the time period matches or is controlled for. Once relevance is established, the coefficient can be cross-checked against paired sales for additional support.
Why the Other Options Are Wrong
Option A: That the model included every property sold in the entire county
A countywide census of sales would mix neighborhoods, price tiers, and property types whose buyers behave differently, producing a blended coefficient that fits no particular market. Completeness is not the goal; comparability is, which is why appraisers segment data before analyzing it. A larger but less relevant sample can easily be worse than a smaller focused one.
Option C: That the coefficient matches the local cost manual's figure exactly
Cost manuals estimate construction cost, while a regression coefficient measures what buyers pay for additional living area, and the two routinely differ. Cost equals value only under specific conditions, and in a soft market or with older improvements the market contribution can fall well below cost. Requiring the two figures to match would confuse the cost approach with the sales comparison approach.
Option D: That the software vendor certifies the model for lender use
No vendor certification makes a model appropriate for a particular assignment, and lenders do not accept adjustments on that basis. USPAP places responsibility for the credibility of results on the appraiser, who must understand the model, verify the data, and be able to explain the output. Outsourcing that judgment to a software provider would not satisfy the appraiser's obligation.
Relevance beats volume
Four hundred sales from the wrong market is a precise answer to a question nobody asked. Ask first whether the data describes the subject's buyers, then worry about how many observations there are.
How to use: On questions about using a statistical result, choose the option that tests whether the data fits the subject. Options invoking bigger samples, external certifications, or agreement with cost figures are distractors.
Exam Tip
Ownership of the conclusion never transfers to a tool. Any option that shifts responsibility to software, a vendor, or a published figure is wrong.
Common Mistakes to Avoid
- -Equating a large sample with a relevant one
- -Using a coefficient without checking the sample's geography, date range, and property type
- -Adopting model output without cross-checking against paired sales
- -Assuming a market adjustment should equal a cost manual figure
Concept Deep Dive
Analysis
This tests what makes a statistically derived adjustment credible, which comes down to whether the data behind it describes the subject's market. A coefficient of $62 per square foot from 400 sales looks authoritative, but the number is only as meaningful as the sample that produced it. If those 400 sales span several submarkets, price tiers, ages, and property types, the coefficient is an average across markets that may not exist in any one of them, and applying it to the subject imports the wrong evidence. Sample size is not a substitute for relevance; 40 sales from the subject's own submarket and property type will usually support a better adjustment than 400 drawn indiscriminately. The appraiser must also confirm that the sales cover the subject's size range, share a comparable date span or include a time variable, and reflect the same buyer pool, and should test the coefficient against paired sales before relying on it.
Background Knowledge
You need to understand market segmentation and why data must be stratified by submarket, property type, and price tier before analysis. You also need to know that appraisers remain responsible for the credibility of results from any model or tool they use, that adjustments should be cross-checked against other techniques such as paired sales, and that sample relevance matters more than sample size.
Real-World Application
An automated tool reports a $62 per square foot living area coefficient built from countywide sales. You rebuild the model on 55 sales from the subject's school district and price tier, get $48, and confirm that figure with two paired sales before using it in the grid, documenting both the sample criteria and the cross-check.
More Sales Comparison Questions
Excess land differs from surplus land in that excess land:
A paired sales analysis reveals that homes with stainless-steel appliances sell for $2,100 more than identical homes with standard appliances — but only when the homes are priced below $350,000. In the subject’s neighborhood, median sale price is $410,000. What is the appraiser’s obligation regarding the $2,100 appliance adjustment?
GLA differs by 210 sq ft between subject and comparable. Paired sales support $65 per sq ft of living area. The line adjustment is:
Paired sales are drawn from transactions six months apart in a stable market. The time adjustment needed is:
The most appropriate unit of comparison is determined by:
A comparable superior to the subject in every adjusted category should produce an indication that is:
Three sales support $520,000; the borrower's purchase contract is $505,000. May the appraisal conclude above the contract price?
A comparable sold for $300,000 with the seller carrying a loan 2 points below market, a benefit worth $8,000. What is its cash-equivalent price?
Why is a foreclosure sale generally a poor comparable in a stable market?
A comparable sold 8 months ago for $250,000 in a market appreciating 6% per year. What is the time-adjusted price?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam