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Analytical Method for Correction Coefficient Determination for Applying Comparative Method for Real Estate Valuation

Author

Listed:
  • Gružauskas Valentas

    (Kaunas University of Technology, School of Economics and Business, Digitalization Scientific Group)

  • Kriščiūnas Andrius

    (Kaunas University of Technology, Faculty of Informatics, Department of Applied Informatics)

  • Čalnerytė Dalia

    (Kaunas University of Technology, Faculty of Informatics, Department of Applied Informatics)

  • Navickas Valentinas

    (Kaunas University of Technology, School of Economics and Business, Academic Center of Economics, Business and Management)

Abstract

Real estate valuation uses 3 main approaches: income, cost and comparative. When applying the comparative method, correction coefficients based on similar real estate transactions are determined. In practice, the coefficients and similar real estate objects are usually determined by using qualitative approach based on the valuators’ experience. The paper provides an analytical method for the determination of correction coefficient, which limits subjectivity when using the comparative method for valuation. The provided analytical approach also integrates macroeconomic indicators in the calculation process. It also addresses issues when available historical real estate transaction data is limited. A machine learning approach was applied to determine the average price of real estate in the region, with the possibility of using this information to obtain correction coefficients where historical data was unavailable. Alternative research usually focuses on final price estimation of the selected real estate object; however, the valuation standard of Tegova released in 2018 does not allow for applying analytically based approaches for individual real estate object evaluation; these approaches can be used only as a supportive tool for valuators.

Suggested Citation

  • Gružauskas Valentas & Kriščiūnas Andrius & Čalnerytė Dalia & Navickas Valentinas, 2020. "Analytical Method for Correction Coefficient Determination for Applying Comparative Method for Real Estate Valuation," Real Estate Management and Valuation, Sciendo, vol. 28(2), pages 52-62, June.
    • Handle: RePEc:vrs:remava:v:28:y:2020:i:2:p:52-62:n:5
    DOI: 10.1515/remav-2020-0015
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    References listed on IDEAS

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    1. Qingyun Du & Chao Wu & Xinyue Ye & Fu Ren & Yongjun Lin, 2018. "Evaluating the Effects of Landscape on Housing Prices in Urban China," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 109(4), pages 525-541, September.
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    More about this item

    Keywords

    Real estate valuation; Analytical models; Machine learning;
    All these keywords.

    JEL classification:

    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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