An appraiser derives a market trend from sales handled by a single brokerage. What problem does this introduce?
Correct Answer
A) Selection bias in how the sample was drawn
Why this is correct: Using data from a single brokerage creates selection bias. The firm's listings may not be a random cross-section of the market; they could be concentrated in specific price ranges, neighborhoods, or property types, making the sample unrepresentative. Why the other choices are wrong: 'An arithmetic error in computing the trend' is incorrect; the problem is with the input data, not the calculation. 'A violation of the confidentiality obligation' is wrong; using public sales data from one broker does not typically breach confidentiality. 'An automatic disqualification of the sample' is false; the sample isn't automatically invalid, but its bias must be acknowledged and addressed. Exam tip: Always ask if your data source systematically excludes parts of the market you are analyzing.
Why This Is the Correct Answer
Why this is correct: Using data from a single brokerage creates selection bias. The firm's listings may not be a random cross-section of the market; they could be concentrated in specific price ranges, neighborhoods, or property types, making the sample unrepresentative. Why the other choices are wrong: 'An arithmetic error in computing the trend' is incorrect; the problem is with the input data, not the calculation. 'A violation of the confidentiality obligation' is wrong; using public sales data from one broker does not typically breach confidentiality. 'An automatic disqualification of the sample' is false; the sample isn't automatically invalid, but its bias must be acknowledged and addressed. Exam tip: Always ask if your data source systematically excludes parts of the market you are analyzing.
More appraisal-statistical-methods Questions
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An appraiser runs a regression of sale price on GLA, age, and a binary variable for 'renovated' (1 = yes, 0 = no). The estimated coefficient for 'renovated' is $18,400 with a standard error of $6,200 and a t-statistic of 2.97. Assuming a two-tailed test at Ξ± = 0.05 and 42 degrees of freedom, what conclusion is supported regarding the market's recognition of renovations?
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