An appraiser extracts cap rates of 7.1%, 7.3% and 9.8% from three sales. Before using the 9.8% sale, the appraiser should:
Correct Answer
D) Verify it — the spread suggests that sale differs in kind
Why this is correct: A cap rate significantly higher than peers (9.8% vs. ~7.2%) suggests the sale may not be truly comparable—possibly due to distress, unusual terms, or different property characteristics. Professional standards require investigation before use. Why the other choices are wrong: 'Average all three' ignores the need for comparability. 'Discard it automatically' is arbitrary without analysis. 'Weight it double' is an unsupported statistical manipulation. Exam tip: Outlier cap rates require verification, not automatic inclusion or exclusion.
Why This Is the Correct Answer
Why this is correct: A cap rate significantly higher than peers (9.8% vs. ~7.2%) suggests the sale may not be truly comparable—possibly due to distress, unusual terms, or different property characteristics. Professional standards require investigation before use. Why the other choices are wrong: 'Average all three' ignores the need for comparability. 'Discard it automatically' is arbitrary without analysis. 'Weight it double' is an unsupported statistical manipulation. Exam tip: Outlier cap rates require verification, not automatic inclusion or exclusion.
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