How should an appraiser handle an apparent outlier in a set of comparable sales?
Correct Answer
C) Investigate it before deciding how to treat it
Investigate the observation’s data accuracy, transaction circumstances and comparability before deciding whether to correct, retain, accommodate or exclude it. An extreme value can be real and informative. Neither automatic deletion nor equal weighting is justified. Replacing it with a median merely to suppress the inconvenient result is not a supported treatment; any defined statistical transformation requires its own disclosed rationale.
Why This Is the Correct Answer
Option C is correct because the appraiser should investigate the sale's data accuracy, transaction circumstances and comparability before deciding whether to correct, retain, accommodate or exclude it. An extreme value can be real and informative. The preferred method of handling an outlier is additional scrutiny to determine whether it is a non-market transaction or contains an error in fact.
Why the Other Options Are Wrong
Option A: Delete it, since outliers distort the analysis
Option A deletes the sale on the grounds that outliers distort the analysis, but automatic deletion can discard real, informative market evidence. The sale should be investigated before any decision to exclude it.
Option B: Keep it, because each sale carries equal weight
Option B keeps the sale because each sale carries equal weight, but equal weighting is not justified when a sale may contain errors or reflect non-market conditions. Its reliability must be investigated first.
Option D: Replace it with the median of the other sales
Option D replaces the sale with the median of the other sales, which suppresses an inconvenient result without understanding its cause. Any statistical transformation needs its own disclosed rationale, and investigation should come first.
Investigate Before You Eliminate
Find out why a sale looks unusual before deciding to drop, keep or adjust it.
How to use: Use this rhyme when a question offers automatic deletion, retention or replacement of an outlier.
Exam Tip
Answers calling for investigation of an unusual sale are generally preferred over automatic deletion, retention or replacement.
Common Mistakes to Avoid
- -Deleting outliers without investigating them
- -Assuming every sale deserves equal weight
- -Replacing an unusual sale with a summary statistic
Concept Deep Dive
Analysis
This question tests the proper response to an apparent outlier among comparable sales. An extreme value can reflect a data error, a non-market transaction or a genuine market difference, so its treatment depends on what investigation reveals. The preferred approach is scrutiny first, then a supported decision.
Background Knowledge
Outliers can arise from recording errors, unusual financing, distressed or related-party sales, or genuine differences in the property or market. Understanding the cause determines whether the sale should be corrected, adjusted for, given less weight or excluded, and that reasoning should be supportable.
Real-World Application
Among six comparable sales near $350,000, one closed at $255,000. Verification shows it was a transfer between relatives, so the appraiser documents it as a non-market transaction rather than averaging it in or silently deleting it.
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