Property valuation: the hedonic pricing model – location and housing submarkets

Purpose – The purpose of this paper is to comment upon the use of hedonic pricing models for the valuation of property. This model can be particularly useful for some housing markets.

Design/methodology/approach – This Education Briefing is an explanation of the how hedonic pricing can be useful in looking at the effect of “location” on the house prices within different submarkets using the Italian real estate market as an example.

Findings – Although, this case study is relatively straightforward, it shows how the application of the market approach can provide insights in cases where the comparable properties belong to different submarkets with relatively few transactions.

Practical implications – In cases of mass appraisals, hedonic pricing models can provide a broad indication of value across submarkets.

Originality/value – This paper develops a general framework that connects multiple regression analysis, direct comparison model and submarket binary variables.