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
A single brokerage's sales are not a representative slice of the market, since firms specialise by price point, geography and property type, so a trend drawn from them reflects that firm rather than the market.
Why the Other Options Are Wrong
Option B: An arithmetic error in computing the trend
The arithmetic may be entirely correct. The defect is in how the sample was drawn, not in the computation.
Option C: A violation of the confidentiality obligation
Confidentiality concerns disclosure of client information and assignment results. Which sales are analysed does not implicate it.
Option D: An automatic disqualification of the sample
The sample is not automatically disqualified. It may be usable with disclosure where the appraiser can support its representativeness.
Whose Market Is This?
Whose Market Is This? One brokerage's book is not the market, however good the arithmetic.
How to use: Ask how the sample was drawn before analysing it. Coverage matters more than sample size.
Exam Tip
Describe the data source in the report. That disclosure lets a reader assess coverage, which is what selection bias questions are really about.
Common Mistakes to Avoid
- -Judging a sample by its size rather than its coverage
- -Confusing selection bias with computational error
- -Omitting the data source from the report
Concept Deep Dive
Analysis
Selection bias arises when the way a sample is drawn makes it unrepresentative of the population it is supposed to describe. A single brokerage's sales are not a random slice of the market: brokerages specialise by price point, by geography, by property type and by client base, and their marketing practices and negotiating patterns differ. A trend computed from one firm's transactions therefore describes that firm's book of business, which may or may not track the market as a whole. The remedy is to draw from a source covering the whole market — a multiple listing service, public records, or an aggregation of several sources — and to describe the data source in the report so a reader can assess its coverage. The distractors misdiagnose the problem: the arithmetic may be flawless, confidentiality is unaffected by which sales are analysed, and the sample is not automatically disqualified — it may be usable with disclosure if it happens to represent the market well, which is a judgment the appraiser must support.
Background Knowledge
Selection bias occurs where a sample is drawn in a way that makes it unrepresentative. Market trend analysis should use sources covering the whole market, with the data source described in the report.
Real-World Application
An appraiser rebuilds a trend analysis from multiple listing service data covering all brokerages after finding the original sample came from one firm.
More Statistics Questions
A set of comparable sales has a mean of $250,000 and a standard deviation of $20,000. What is the coefficient of variation?
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