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Real estate appraisals, hedonic models and the measurement of house price dispersion

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  • Gaetano Lisi
  • Mauro Iacobini

Abstract

This paper aims to provide a simple method for measuring the price dispersion in the housing market controlling for the differences in attributes or qualities of the residential real estate units. Precisely, the paper proposes an extended hedonic pricing model which incorporates standard market situations (where a better good is sold at a higher price) as well as non-standard market situations (in which the opposite is true). The extended model is able to take into account the variance in house prices which can not be attributed to the heterogeneous nature of real estate goods. The main result of this analysis is that the extended model explains a greater proportion of the variability of selling price, thus giving an important contribution for the application of the hedonic method to the real estate appraisals.

Suggested Citation

  • Gaetano Lisi & Mauro Iacobini, 2013. "Real estate appraisals, hedonic models and the measurement of house price dispersion," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(1), pages 61-73.
    • Handle: RePEc:eei:journl:v:56:y:2013:i:1:p:61-73
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    References listed on IDEAS

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    1. Anglin, Paul M & Gencay, Ramazan, 1996. "Semiparametric Estimation of a Hedonic Price Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 633-648, Nov.-Dec..
    2. Charles Leung & Youngman Leong & Siu Wong, 2006. "Housing Price Dispersion: An Empirical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 357-385, May.
    3. Charles Ka Yui Leung & Jun Zhang, 2011. ""Fire Sales" in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Global Social Science Institute, vol. 14(3), pages 311-329.
    4. Cotteleer, Geerte & Gardebroek, Cornelis, 2006. "Bargaining and market power in a GIS-based hedonic pricing model of the agricultural land market," 2006 Annual meeting, July 23-26, Long Beach, CA 21255, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Joseph B. Lipscomb & J. Brian Gray, 1995. "A Connection between Paired Data Analysis and Regression Analysis for Estimating Sales Adjustments," Journal of Real Estate Research, American Real Estate Society, vol. 10(2), pages 175-184.
    6. Daniel J. Henderson & Christopher F. Parmeter & Subal C. Kumbhakar, 2007. "Nonparametric estimation of a hedonic price function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 695-699.
    7. Harry Haupt & Joachim Schnurbus & Rolf Tschernig, 2010. "On nonparametric estimation of a hedonic price function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 894-901.
    8. George H. Lentz & Ko Wang, 1998. "Residential Appraisal and the Lending Process: A Survey of Issues," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 11-40.
    9. Vukina, Tomislav & Zheng, Xiaoyong, 2010. "Bargaining, Search, and Price Dispersion: Evidence from the Live Hogs Market," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(3), pages 1-13, October.
    10. Quan, Daniel C & Quigley, John M, 1991. "Price Formation and the Appraisal Function in Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 127-146, June.
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    Cited by:

    1. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2024. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    2. Antonia Díaz, 2024. "Credit and Inventories in Illiquid Housing Markets," Documentos de Trabajo del ICAE 2024-04, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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    More about this item

    Keywords

    Housing price dispersion; residual price volatility; hedonic pricing models.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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