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Neural Network Hedonic Pricing Models in Mass Real Estate Appraisal


  • Steven Peterson

    () (Virginia Commonwealth University)

  • Albert B. Flanagan

    () (Williams Appraisers, Inc.)


Using a large sample of 46,467 residential properties spanning 1999-2005, we demonstrate using matched pairs that, relative to linear hedonic pricing models, artificial neural networks (ANN) generate significantly lower dollar pricing errors, have greater pricing precision out-of-sample, and extrapolate better from more volatile pricing environments. While a single layer ANN is functionally equivalent to OLS, multiple layered ANNs are capable of modeling complex nonlinearities. Moreover, because parameter estimation in ANN does not depend on the rank of the regressor matrix, ANN is better suited to hedonic models that typically utilize large numbers of dummy variables.

Suggested Citation

  • Steven Peterson & Albert B. Flanagan, 2009. "Neural Network Hedonic Pricing Models in Mass Real Estate Appraisal," Journal of Real Estate Research, American Real Estate Society, vol. 31(2), pages 147-164.
  • Handle: RePEc:jre:issued:v:31:n:2:2009:p:147-164

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    References listed on IDEAS

    1. Grether, D. M. & Mieszkowski, Peter, 1974. "Determinants of real estate values," Journal of Urban Economics, Elsevier, vol. 1(2), pages 127-145, April.
    2. Carlo Bagnoli & Halbert C. Smith, 1998. "The Theory of Fuzzy Logic and its Application to Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 169-200.
    3. Shiller, Robert J & Weiss, Allan N, 1999. "Evaluating Real Estate Valuation Systems," The Journal of Real Estate Finance and Economics, Springer, vol. 18(2), pages 147-161, March.
    4. A. Quang Do & G. Grudnitski, 1993. "A Neural Network Analysis of the Effect of Age on Housing Values," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 253-264.
    5. Elaine M. Worzala & Margarita Lenk & Ana Silva, 1995. "An Exploration of Neural Networks and Its Application to Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, vol. 10(2), pages 185-202.
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    Cited by:

    1. Beatriz Larraz, 2011. "An Expert System for Online Residential Properties Valuation," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 69-82, April.
    2. Narula, Subhash C. & Wellington, John F. & Lewis, Stephen A., 2012. "Valuating residential real estate using parametric programming," European Journal of Operational Research, Elsevier, vol. 217(1), pages 120-128.
    3. Manuel Landajo & Celia Bilbao & Amelia Bilbao, 2012. "Nonparametric neural network modeling of hedonic prices in the housing market," Empirical Economics, Springer, vol. 42(3), pages 987-1009, June.
    4. Áron Horváth & Blanka Imre & Zoltán Sápi, 2016. "The International Practice of Statistical Property Valuation Methods and the Possibilities of Introducing Automated Valuation Models in Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(4), pages 45-64.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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