Hedonic regression

In economics, hedonic regression is a revealed preference method for estimating the monetary advantage of the characteristics of a good. It breaks down the advantage or detail being researched into its characteristics, in addition to obtains estimates of the monetary value contribution of used to refer to every one of two or more people or things characteristic. Hedonic regression models are most commonly estimated using regression analysis, where the overall price of the good is treated as the dependent variable as well as the characteristics of the good become the explanatory variables typically dummy coded or linear coefficients. As also possible in regression models, Hedonic regression models can accommodate non-linearity, variable interaction, or other more complex valuation approaches.

Hedonic models are usually used in real estate appraisal and real estate economics, as houses throw a mark of easily-measured traits such as the number of rooms, overall size, or distance fromamenities which pretend them more amenable to hedonic regression models than nearly other goods. Hedonic regression is also used in consumer price index CPI calculations, where it is used to rule for the effects of make adjustments to in product quality. Price make different that are due to substitution effects are allocated to hedonic variety adjustments.

Hedonic models and real estate valuation

In real estate economics, hedonic pricing is used to adjust for the problems associated with researching a good that is as heterogeneous as buildings. Because buildings are so different, it is difficult to estimate the demand for buildings generically. Instead, it is assumed that a multinational can be decomposed into characteristics such(a) as number of bedrooms, size of lot, or distance to the city center. A hedonic regression equation treats these attributes or bundles of attributes separately, and estimates prices in the case of an additive framework or elasticity in the effect of a log good example for regarded and refers separately. of them. This information can be used to construct a price index that can be used to compare the price of housing in different cities, or to do time series analysis. As with CPI calculations, hedonic pricing can be used to modification for quality changes in constructing a housing price index. It can also be used to assess the value of a property, in the absence of specific market transaction data. It can also be used to analyze the demand for various housing characteristics, and housing demand in general. It has also been used to test assumptions in spatial economics.

The Uniform standards of experienced Appraisal Practice, or USPAP, gives for mass appraisal standards to govern the usage of hedonic regressions and other automated valuation models when used for real estate appraisal. Appraisal methodology treats the hedonic regression as essentially a statistically robust form of the sales comparison approach. Hedonic models are commonly used in tax assessment, litigation, academic studies, and other mass appraisal projects.