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
Why this is correct: An outlier requires investigation to determine its cause. It could be a data error, a non-arm's length transaction, or a valid sale revealing market diversity. The appropriate treatment (exclude, adjust, or include) depends on this verification. Why the other choices are wrong: 'Delete it, since outliers distort the analysis' is wrong; automatic deletion without cause is unsupported and may bias results. 'Keep it, because every sale carries equal weight' is incorrect; not all sales are equally comparable, and an invalid outlier should not be weighted equally. 'Replace it with the median of the other sales' is false; fabricating data is never acceptable. Exam tip: Never manipulate data automatically. Investigate first, then decide and disclose your reasoning.
Why This Is the Correct Answer
Why this is correct: An outlier requires investigation to determine its cause. It could be a data error, a non-arm's length transaction, or a valid sale revealing market diversity. The appropriate treatment (exclude, adjust, or include) depends on this verification. Why the other choices are wrong: 'Delete it, since outliers distort the analysis' is wrong; automatic deletion without cause is unsupported and may bias results. 'Keep it, because every sale carries equal weight' is incorrect; not all sales are equally comparable, and an invalid outlier should not be weighted equally. 'Replace it with the median of the other sales' is false; fabricating data is never acceptable. Exam tip: Never manipulate data automatically. Investigate first, then decide and disclose your reasoning.
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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