EXAMPLES OF REAL
ESTATE STATISTICAL
MISTAKES
One study claimed their
”research” proved that homes
with more peaked roofs sold
for lower prices than those
��������������������������������������������������
Another asserted that homes
with red doors sold for 20%
more than those with black
doors. Then another asserted that homes with pet
doors were worth much more! Finally, another
������������������������������������������������������������������������������������������������������������������
����������������������������������������������������������������������������������������������������
backyard were related to higher prices. Amazing!
Who would have thought such a thing?
Most of these funny foibles are the result of a
handful of basic statistical fallacies. Some of these
even rise to the level of ‘groupthink’ culture, where
everyone believes something because they think
everyone else believes it to be true (but no one
checks to see if it really is true).
One overarching belief has to do with ego. It is the
belief that “it is just common sense.” The belief that
something should be obvious to everyone who has
an ounce of brains— “like me.”
Unfortunately, statistics and today’s data science are
not always simplistic. What appears to be true, often
is not. In the numerous statistics (particularly
econometrics) courses I have taken, entire lectures
are often focused on a particular fallacy. The good
news is that it does make the topic more
interesting to wallow through, but sometimes
������������������������������������������������������������������������������������������
wrong, or even dangerous—brought light and
awareness of how the world really works.
While there are many statistical concepts that can be
misunderstood, a few stand out. Regression is
another complex and misused ‘statistical’ topic. An
article “Why Doesn’t Regression Work?” is available
through my website: georgedell.com.
56 | APPRAISAL BUZZ FALL 2019
By the way, the reason ‘statistical’ is in quotes, is
because these are not really mistakes of
statistics. The math is always right. These are a
matter of ‘modeling’ mistakes. As The Appraisal of
Real Estate says: “Abuse usually falls into one or
both of two categories: overt attempts to mislead or
ignorance. In my litigation practice I have found the
“or both” category to be the most common of these.
SOME COMMON AND/OR
IRRITATING FALLACIES
Correlation equals causation
As easy as this one is to understand, people seem
to take joy in conclusions which favor their cause, or
simply provide drama to their writing.
Why bother with good science, especially when you
have strong beliefs and a point to make.
An example of this are some pure facts. How about
the relationship between increased ice cream
eating and drownings. Several studies have been
��������������������������������������������������������������������������������������������������������
prove the same thing: ice cream kills. We need to
ban ice cream immediately!
What’s the problem here? There is high correlation,
repeatedly, between ice cream and drownings. The
issue is that there is no connection, other than that
both tend to occur during the summer, every
summer. (Oh, by the way, drowning doesn’t cause
increased ice cream eating either.)
PROPERTY VALUE
/georgedell.com
