Several matched pairs give adjustments of $9,000, $10,000, $11,000 and $32,000 for the same feature. What should the appraiser do?
Correct Answer
D) Examine the fourth pair before drawing a conclusion
Why this is correct: Examine the fourth pair before drawing a conclusion. The governing concept is outlier analysis. Three adjustments cluster tightly ($9k-$11k), suggesting a consistent market signal. The fourth ($32k) is an outlier that may be due to a hidden difference between those two sales. It must be investigated before being included in or excluded from the analysis. Why the other choices are wrong: Average all four to reach $15,500 as the adjustment is wrong because averaging an outlier distorts the result away from the consistent market evidence. Adopt $32,000 as the market's highest observed figure is wrong without justification; the highest figure may not be representative. Report the full range without selecting a figure avoids the necessary appraiser judgment to derive a supportable adjustment. Exam tip: Always investigate outliers in matched-pair data; don't blindly include or exclude them.
Why This Is the Correct Answer
Three tightly clustered indications and one far outside them signal a problem with the fourth pair, which must be investigated for an uncontrolled variable, a data error or an unrepresentative transaction.
Why the Other Options Are Wrong
Option A: Average all four to reach $15,500 as the adjustment
Averaging produces $15,500, above every consistent indication, and treats a probably defective pair as equally reliable.
Option B: Adopt $32,000 as the market's highest observed figure
Selecting the highest figure is advocacy rather than analysis and ignores the weight of the consistent evidence.
Option C: Report the full range without selecting a figure
The appraiser is engaged to reach a conclusion. Reporting a range without selecting abdicates that judgment.
Three Agree, One Does Not
Three Agree, One Does Not. Averaging them all lands you somewhere the market never went.
How to use: Investigate the outlier for a second uncontrolled difference. That is the usual explanation.
Exam Tip
Document any exclusion with the reason found. An undocumented deletion looks like data selection toward a conclusion.
Common Mistakes to Avoid
- -Averaging indications of unequal reliability
- -Excluding the outlier without investigating why
- -Reporting a range instead of concluding
Concept Deep Dive
Analysis
Three pairs clustering tightly at $9,000, $10,000 and $11,000 and one at $32,000 is not a spread to be averaged; it is three consistent observations and one that does not belong with them. Averaging pulls the conclusion to $15,500 — above every one of the three consistent indications — which is a figure the market has not supported anywhere. The right step is investigation of the fourth pair, because outliers in paired data almost always have a cause: an uncontrolled second variable, so the pair differs in something beyond the feature being measured; a data error in price or characteristics; or a non-arm's-length transaction on one side. Once identified, the pair is either corrected, re-derived with the second variable controlled, or excluded with the reason documented. Selecting the highest figure is advocacy. And reporting the range without concluding abdicates the judgment the appraiser is engaged to exercise.
Background Knowledge
Paired data analysis isolates a single variable. Outlying indications usually reflect uncontrolled variables, data errors or unrepresentative transactions, and are investigated before the adjustment is concluded.
Real-World Application
An appraiser finds the $32,000 pair also differed in lot size, excludes it with the reason documented, and concludes $10,000 from the three consistent indications.
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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An appraiser presents a statistical analysis in a report. What must accompany it for the reader to weigh it?
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Paired sales analysis and regression differ mainly in that regression:
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