How should outliers be treated in a valuation to avoid bias?

• A. Ignore outliers completely to simplify analysis.
• B. Automatically adjust all outliers by a fixed percentage.
• C. Use a standardized rule to replace outliers with a central value.
• D. Investigate reasons, determine whether to adjust or exclude, and document the rationale and data supporting the decision.

Answer: (D)

Outliers can skew a valuation, so the best practice is to examine each outlier to understand why it exists. This means looking at whether the point results from a data error, a mispriced comparable, unusual transaction terms, or a genuine market condition unique to that property. Based on that investigation, decide whether to adjust the value, exclude the outlier, or keep it as part of the analysis, and do so with a clear, documented rationale. Recording the data you relied on, the method used, and the reasoning behind the decision ensures the valuation remains fair and credible, helps prevent bias from arbitrary rules, and provides a transparent trail for review. Avoid blind ignoring or blanket adjustments; use an evidence-based approach that respects the context of each outlier and documents the approach taken.