An appraiser uses time-adjusted sale prices as the dependent variable rather than raw prices. What does this accomplish?
Correct Answer
B) It removes market movement from what is modelled
Why this is correct: Using time-adjusted sale prices as the dependent variable removes the effect of market-wide price changes over time from the analysis. This allows the regression model to isolate and estimate the value contribution of physical and locational characteristics alone. Why the other choices are wrong: It does not automatically increase R-squared; it may increase or decrease it depending on the data. It does not eliminate the need for sale verification. It does not allow the use of unverified sales. Exam tip: You can model price change in two ways: 1) Use raw prices and include time as an independent variable, or 2) Use time-adjusted prices and exclude time. Both aim to isolate physical/locational value.
Why This Is the Correct Answer
Why this is correct: Using time-adjusted sale prices as the dependent variable removes the effect of market-wide price changes over time from the analysis. This allows the regression model to isolate and estimate the value contribution of physical and locational characteristics alone. Why the other choices are wrong: It does not automatically increase R-squared; it may increase or decrease it depending on the data. It does not eliminate the need for sale verification. It does not allow the use of unverified sales. Exam tip: You can model price change in two ways: 1) Use raw prices and include time as an independent variable, or 2) Use time-adjusted prices and exclude time. Both aim to isolate physical/locational value.
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