What is the purpose of a sensitivity analysis in an appraisal?
Correct Answer
A) To identify which inputs most affect the conclusion
Why this is correct: Sensitivity analysis tests how the value conclusion changes when key inputs (like cap rate, growth rate, NOI) are varied. Its primary purpose is to identify which inputs have the greatest influence on the result, highlighting areas where the conclusion is most sensitive to estimation error. Why the other choices are wrong: The choice to select the input producing the highest value is incorrect; the goal is analysis, not value maximization. The choice to remove uncertainty is wrong; it quantifies uncertainty but doesn't eliminate it. The choice to satisfy a specific reporting requirement is false; while useful, it's not a USPAP-mandated report section. Exam tip: Use sensitivity analysis to find your 'critical variables'—where small errors have big impacts.
Why This Is the Correct Answer
Why this is correct: Sensitivity analysis tests how the value conclusion changes when key inputs (like cap rate, growth rate, NOI) are varied. Its primary purpose is to identify which inputs have the greatest influence on the result, highlighting areas where the conclusion is most sensitive to estimation error. Why the other choices are wrong: The choice to select the input producing the highest value is incorrect; the goal is analysis, not value maximization. The choice to remove uncertainty is wrong; it quantifies uncertainty but doesn't eliminate it. The choice to satisfy a specific reporting requirement is false; while useful, it's not a USPAP-mandated report section. Exam tip: Use sensitivity analysis to find your 'critical variables'—where small errors have big impacts.
More appraisal-statistical-methods Questions
A price index rises from 100 to 121 over two years. What compound annual rate does this represent?
A sample of four sales drawn from a market with 200 annual transactions is:
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?
An appraiser includes both 'total room count' and 'bedroom count' as independent variables in a regression model estimating single-family home sale prices. The variance inflation factor (VIF) for 'bedroom count' is calculated as 12.3. What is the most appropriate appraisal action based on this result?
An appraiser runs a regression of sale price on GLA, age, and a binary variable for 'renovated' (1 = yes, 0 = no). The estimated coefficient for 'renovated' is $18,400 with a standard error of $6,200 and a t-statistic of 2.97. Assuming a two-tailed test at α = 0.05 and 42 degrees of freedom, what conclusion is supported regarding the market's recognition of renovations?
To validate the functional form of a regression model used for adjustments, an appraiser plots residuals against predicted values and observes a clear inverted-U pattern. What does this pattern indicate, and what is the most defensible corrective action?
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?
An appraiser includes months elapsed since each sale as a variable in a price model. What is this intended to capture?
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam