analyzing and presenting data

It is good valuation practice to provide a descriptive analysis of sale or rental data for inclusion in the valuation report. Basic statistical analysis used as a descriptive tool is particularly useful in this regard. This part will cover the use of measures of central tendency and spread. This will be done by using an example:

EXAMPLE

The following are the residential sales analyzed in a suburb in which the subject comparable property is being valued:

SUBURB: Summerton
Number of sales: 1$'000 

250 300 350 350 400 400 400 450 450 450 500 500 600 650 700 750 1000 1200 1500

How should such data be included in the valuation report?

A very effective method is to summarize it as a frequency distribution. The following tables how this is carried out using common spreadsheet commands:

PREPARING A FREQUENCY HISTOGRAM IN EXCEL

1. Enter data to be analyzed
2. Enter bin values: 100 300 500 700 900 1100 1300 1500 1700 <Options><Analysis tools><Histogram>
Enter input range
Enter bin range
Enter output range <Enter>

Excel will construct a table showing the frequency values, cumulative totals and a histogram as a chart. This is shown below:





If the pareto chart option is chosen an additional table will be constructed on the right of the frequency table. The subsequent pareto chart is shown below. It is useful in that it shows the progressive accumulation of sale data from the highest column at the left to the lowest column at the right.









The distribution above is non symmetrical being skewed to the right. Histograms should be analyzed according to their deviation from the centre and their shape. The table is a pareto table in which the frequencies are ranked in ascending order, according to frequency

EXCEL - TO SEE HISTOGRAM <Window><Chart 1>

The resultant histogram is shown above.

RULES FOR HISTOGRAMS
COMPARING WITH ANOTHER SUBURB: Williamville

The valuer considers that another suburb Williamville, is comparable with Summerton for valuation purposes. Sales from the two suburbs can be compared to see whether or not there is comparability between the 2 samples.

SALES FOR WILLIAMVILLE $'000

100 200 250 300 300 350 400 450 450 450 500 550 550 600 600 650 700 700 750

The above data results in the frequency histogram below:

Although Summerton sales show a similar centre line, the sales for Williamville are more concentrated around the centre, that is, there is less spread. Prima facie, the mean value of the sales for Williamville is more reliable than those for Summerton. However, the use "stemplots" is a better way to compare two sales data.

See stemplots

DESCRIBING DATA

The above diagrammatic analysis is very useful and should be an integral part of the valuation report however, for further analysis, quantitative measures are required. The most common quantitative measures are the measures of centrality; MEAN, MEDIAN and MODE.

MEAN (AVG)

The MEAN or average is the most commonly used measure of valuation data. However, it can lead to error in valuation analysis as it is heavily influenced by very high and very low data and in a group of sales data it is common to have one or two very high sales and/or very low sales.

MEAN = (SUMX)/n

It is easily found with the following spreadsheet commands:

Excel: = AVERAGE()

MEDIAN (MD)

The median is generally, a better measure in valuation analysis as it is the CENTRAL value in a data group. The central value is found as follows: MD = (n+1)/2 Summerton and Williamville have 19 sales each: MD = (19+1)/2 = 10 Therefore, the median sale is that sale at the 10th place.

MODE (MO)

The mode is the most common value and is not useful with the subject raw data as there are a number of sales with the same value. However, it can be used with the histogram as the mode is that frequency class with the highest column.

MEASURES OF CENTRALITY FOR SUMMERTON AND WILLIAMVILLE


MEAN
MEDIAN
MODE
SUMMERTON:
589.4
450
300-500
WILLIAMVILLE:
465.7
450
300-500


The 3 measures together provide a good description or analysis of the sale data. Although the means are substantially different the medians and modes are the same. Therefore, some other measure of central tendency would be necessary to further analyse the sets of data. Although the above measures are useful measures of centrality they do not measure spread or range. The following useful statistics add a great deal to the analyses by measuring the spread of the sale data around the mean.

WHEN THE DATA IS SKEWED, THE 3 MEASURES CANNOT COINCIDE



See quartiles

MAXIMUM AND MINIMUM VALUES - THE RANGE

Adding MAXIMUM and MINIMUM values provides a very good picture of the spread of the data. For unsorted data these values can be readily found with the following spreadsheet commands:

Excel: = MIN() = MAX()

The range provides a good measure of spread and the valuer would feel more confident about using data with a small range than data with a high range. RANGE = MAX - MIN For the sales in Summerton:

RANGE = 1500 - 250 = 1250(000)

See boxplot

See standard deviation

See Z scores


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