Price per square foot declines as homes get larger. What does this imply for a linear regression of price on area?
Correct Answer
C) A straight line may not describe it adequately
Why this is correct: If price per square foot declines as size increases, the relationship between total price and area is not linear (a straight line). A linear regression assumes a constant rate of change, which would misrepresent this curved relationship. Why the other choices are wrong: "The model will fit the relationship perfectly" is false; a straight line cannot perfectly fit a curved pattern. "Area should be removed from the model entirely" is wrong; area is relevant, but the model form needs adjustment. "The dependent variable has been misidentified" is incorrect; price is the correct dependent variable. Exam tip: A declining unit rate (price per SF) signals non-linearity. Consider transformations or segmented analysis.
Why This Is the Correct Answer
Why this is correct: If price per square foot declines as size increases, the relationship between total price and area is not linear (a straight line). A linear regression assumes a constant rate of change, which would misrepresent this curved relationship. Why the other choices are wrong: "The model will fit the relationship perfectly" is false; a straight line cannot perfectly fit a curved pattern. "Area should be removed from the model entirely" is wrong; area is relevant, but the model form needs adjustment. "The dependent variable has been misidentified" is incorrect; price is the correct dependent variable. Exam tip: A declining unit rate (price per SF) signals non-linearity. Consider transformations or segmented analysis.
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?
A property sold for $400,000 and resold three years later for $463,050 with no physical change. What compound annual rate does this indicate?
A histogram of neighborhood sale prices shows two distinct peaks. What does this most likely mean?
What does it mean to validate a regression model?
In a market study, what does a frequency distribution of sale prices show?
An appraiser includes months elapsed since each sale as a variable in a price model. What is this intended to capture?
An appraiser presents a statistical analysis in a report. What must accompany it for the reader to weigh it?
An R-squared of 0.86 in a sales model indicates that:
Which measure would best summarize the most common lot size in a subdivision?
Paired sales analysis and regression differ mainly in that regression:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam