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.
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