What is a predominant value? Is it the median, the mode, or the mean?
Or could the predominant value possibly be the geometric mean or weighted mean? As it turns out, there are a couple dozen different ways to calculate a measure of center in data analytics. None of them are called ‘predominant’.
Certainly our primary residential form would not itself use a ‘weasel word’! Of course not. It can’t be. According to the Fannie Mae Selling guide “published May 30, 2017” — tomorrow, as I write this on Memorial Day, May 29, 2017.
Isolated high and low extremes should be excluded from the range, which means that the predominant price will be that which is the most common or most frequently found in the neighborhood. The appraiser may state the predominant price as a single figure or as a range, if more appropriate.
Ok, got it. ‘Most common or most frequently found’. Well that seems to best fit the statistical definition of the mode — most frequent. All is well. Or is it?
Let’s make sure. What is this supposed to be a mode of?
The appraiser must indicate the price range and predominant price of properties in the subject neighborhood. The price range must reflect high and low prevailing prices for one-unit properties, two-to four-unit properties, condo units, or co-op units depending on the property type being appraised and the appraisal form being used.
OK, in the “neighborhood”. And of the property type being appraised. Getting closer now.
So, what is a neighborhood?
Most of our educations states that a neighborhood is a group of complementary land uses. So we will put aside the issue of exact boundaries and neighborhood characteristics.
My practical experience is that some neighborhoods are easy. The larger clump of prices for the neighborhood is near the middle, the mean, and the median. But for other neighborhoods, it is not so easy.
In the Valuemetrics.Info, Stats, Graphs, and Data Science class, one learning example we use includes four modes. Two are pretty equal, and two more are higher, but certainly not “isolated high and low extremes.” There are several sale prices in each of these two groups (modes) above the others. Hmmm… The two lower priced groups seem to vary around two “predominant” lot sizes, while the two higher priced groups vary around location on a golf course, and two different waterfronts!
So, readers — should I use a mode most similar to the group in which it belongs (say the bay front), or is it the ‘largest’ of the four modes, but considerably below the estimated value of my subject property?
If I report the mode which Fannie seems to require, my subject will obviously be ‘overvalued’. If I report the mode for which is the best competitive market segment — on the waterfront — then I am breaking the rule: “The appraiser must indicate the price range and predominant price of properties in the subject neighborhood.”
Am I in trouble either way? What is the problem?
What say you?