Page 20 - Regression Guideline for AMC
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Understanding regression mechanics
• For the example property, the 95% confidence interval ranges from $488,276 to $408,493 (around the es6mate of $448,384). Given that the last known sale price was $339,100, we can quickly see this is one of the five percent 6mes when the true value lies outside the confidence interval.
• We suspect that the property being bank owned might have meant the last sale was lowered by foreclosure and/or a short sale or being in a neighborhood with many foreclosures and so we would want the appraiser to have done further inves6ga6on of this property and the exact circumstances of its last sale.
• Recall too that the regression equa6on for the actual value of a property consists of the set of predictors plus an error term or residual. We have es6mated the value of the subject property based on the predictors. We also need to know the error term or residual because that will help us determine how accurate our model is for this property.
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