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The Hedonic Price Method in Real Estate and housing market research: a review of the literature
The Hedonic price method called as hedonic regression helps to estimate the value of a product or
demand of a product. Products are determined by their constitute properties, therefore the value of the
commodity could be calculated by summing up their estimated values of its detached properties. The
neighborhood characteristics of real estate are extensively looked as the determinant of rent or price
while understood value of structural distinctiveness is under looked. Also while environmental amenities
like air quality is extensively looked upon, the impact of social factors like crime and racial segregation is
under looked.
The variables that are considered like number of rooms and type of rooms ie(no of bedrooms,
bathrooms ), floor area, category number of family members (single family, attached, detached, number
of floors, availability of heating and cooling systems, HVAC, age, structural features such as basement,
fireplaces, garages. finishes and structural materials used.
The equation of hedonic regression equation can be linear, semi-linear. Sales comparison approaches
that are used in real estate valuation are a hedonic type measurement. The Sales adjustment grid
technique takes into explanation a small quantity of freshly sold properties in the neighborhood of the
subject property to analyze the attributes of the property. A modification to the comparables is done by
trend analysis, simple surveys or matched pair analysis of the market. Multiple regression and sales
adjustment grids are similar in theory. Multiple regression analysis builds on numerical calculations
while sales grid method constitutes a approximation approach. Multiple regression analysis considers
large number of geographically detached property dealings to establish the extent of the effect of
various characteristics on property value.
Housing, buildings and various real estate properties verifies the use of Hedonic Pricing Method to
determine their value and demand. Houses, land plots and buildings differ by their location making it
complex to approximate the demand broadly. These properties can vary according to their location and
infrastructure amenities like roads and their distance from the city center, natural environment, ecology
and the quality of architecture and design. Rent values are dependent on current market demand and
supply conditions disregarding the actual value of real estate, while rent values are a proxy to the real
estate value in experiential analysis.
The simplest way of understanding special aspects in the model is to examine the distance from the
fundamental business district or city center. Spatial hedonic models thus replicate spatial econometric
growth.
The easiest way to understand distinct features of the hedonic model is by scrutinizing the distance from
essential business districts or city center. Many real estate possessions confirm the use of Hedonic
Pricing Technique to evaluate their worth and demand. These possessions vary in accordance to their
setting and infrastructure facilities like roads, natural atmosphere, ecological surroundings, quality of
architecture, construction, design, details. Rent prices rely on the existing market demand and supply
circumstances irrespective of the concrete price of the real estate property, while rent values are a
substitution to real estate prices in empirical investigation.
References/ Source-
https://ro.uow.edu.au/cgi/viewcontent.cgi?referer=https://www.google.com/
&httpsredir=1&article=1977&context=buspapers
Shanaka Herath, Gunther Maier, The Hedonic price method in real estate and housing market
research: a review of the literature