Two models of the same data give size adjustments of $62 and $91 per square foot. What does this show?
Correct Answer
A) The specification materially affects the result
Why this is correct: The specification materially affects the result. The governing concept is model specification. Different models (e.g., including/excluding variables, using different functional forms) yield different coefficients. The $62 vs. $91 per sq ft difference shows that the choice of model variables and structure significantly impacts the derived adjustment. Why the other choices are wrong: One of the two models was computed incorrectly is an assumption not supported by the facts; both could be correctly computed but specified differently. The average of the two is the correct adjustment is arbitrary without justification. Regression cannot be used to derive adjustments is false; regression is a valid tool, but results require careful interpretation and corroboration. Exam tip: Regression-derived adjustments are sensitive to model specification; corroborate them with paired sales or other market evidence.
Why This Is the Correct Answer
Why this is correct: The specification materially affects the result. The governing concept is model specification. Different models (e.g., including/excluding variables, using different functional forms) yield different coefficients. The $62 vs. $91 per sq ft difference shows that the choice of model variables and structure significantly impacts the derived adjustment. Why the other choices are wrong: One of the two models was computed incorrectly is an assumption not supported by the facts; both could be correctly computed but specified differently. The average of the two is the correct adjustment is arbitrary without justification. Regression cannot be used to derive adjustments is false; regression is a valid tool, but results require careful interpretation and corroboration. Exam tip: Regression-derived adjustments are sensitive to model specification; corroborate them with paired sales or other market evidence.
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