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Impact of the Regularization of Regression Models on the Results of the Mass Valuation of Real Estate

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  • Gnat Sebastian

    (University of Szczecin, Institute of Economics and Finance, Mickiewicza 64, 71-101Szczecin, Poland)

Abstract

Research background: Mass appraisal is a process in which multiple properties are appraised simultaneously, with a uniform approach. One of the tools that can be used in this area are multiple regression models. In the valuation of real estate features are often described on an ordinal or nominal scale. Replacing them with dummy variables with an insufficient number of observations leads to multicollinearity. On the other hand, there is a risk of overfitting the model. One of the ways to eliminate or weaken these phenomena is to introduce regularization based on a model’s penalization for the high values of its weights.

Suggested Citation

  • Gnat Sebastian, 2020. "Impact of the Regularization of Regression Models on the Results of the Mass Valuation of Real Estate," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 163-176, June.
    • Handle: RePEc:vrs:foeste:v:20:y:2020:i:1:p:163-176:n:9
    DOI: 10.2478/foli-2020-0009
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    References listed on IDEAS

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    1. Jozef Zurada & Alan S. Levitan & Jian Guan, 2011. "A Comparison of Regression and Artificial Intelligence Methods in a Mass Appraisal Context," Journal of Real Estate Research, American Real Estate Society, vol. 33(3), pages 349-388.
    2. W.J. McCluskey & M. McCord & P.T. Davis & M. Haran & D. McIlhatton, 2013. "Prediction accuracy in mass appraisal: a comparison of modern approaches," Journal of Property Research, Taylor & Francis Journals, vol. 30(4), pages 239-265, December.
    3. Hans R. Isakson, 1998. "The Review of Real Estate Appraisals Using Multiple Regression Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 15(2), pages 177-190.
    4. Clifford M. Hurvich & Jeffrey S. Simonoff & Chih‐Ling Tsai, 1998. "Smoothing parameter selection in nonparametric regression using an improved Akaike information criterion," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 60(2), pages 271-293.
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    More about this item

    Keywords

    property valuation; market analysis; regularization;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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