An appraiser stratifies a data set before analyzing it. What does this mean?
Correct Answer
A) Dividing the data into meaningfully similar groups
Stratification divides observations into defined, meaningfully relevant groups for separate analysis or sampling. It can help distinguish market segments, but the grouping criteria and within-group evidence need validation. It is not deleting all unusual cases, sorting by price or merely giving recent sales more weight. Recency weighting and a supported price adjustment for market movement are distinct operations.
Why This Is the Correct Answer
Option A is correct because stratification divides observations into defined, meaningfully similar groups so each can be analyzed separately. This helps distinguish market segments, although the grouping criteria and within-group evidence still need validation.
Why the Other Options Are Wrong
Option B: Removing the observations that look unusual
Option B describes removing observations that look unusual, which is outlier screening or trimming, not stratification. Stratifying keeps the observations and sorts them into groups.
Option C: Ordering the sales from lowest to highest price
Option C describes ordering sales from lowest to highest price, which is arraying the data. Sorting does not divide the data into analytical subsets.
Option D: Weighting recent sales more heavily than older
Option D describes weighting recent sales more heavily, which is recency weighting. Stratification is about grouping, not weighting.
Strata are layers
Like rock strata, stratifying separates data into distinct layers, each studied on its own.
How to use: Use this image to recognize stratification as grouping rather than removing or sorting.
Exam Tip
If an answer describes splitting data into groups by a criterion, it describes stratification.
Common Mistakes to Avoid
- -Equating stratification with deleting outliers
- -Confusing stratification with sorting by price
- -Thinking stratification means weighting recent sales
Concept Deep Dive
Analysis
This question tests the meaning of stratification. To stratify is to divide a sample of observations into two or more subsets according to some criterion for separate analysis. The candidate must distinguish this from removing outliers, sorting by price or weighting by recency.
Background Knowledge
Stratification splits data into subsets by a criterion such as location, property type, age or size so that each group can be studied on its own. It helps reveal whether different market segments behave differently. Grouping criteria should be meaningful for the analysis and checked against the evidence.
Real-World Application
An appraiser analyzing a mixed area separates sales into detached homes and townhouses before computing price trends. The two groups show different appreciation rates that would have been blurred in a combined analysis.
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