The use of hedonic pricing method to determine the parameters affecting residential real estate prices

Abstract

Owning residential real estate is very important not only for satisfying the need for shelter—a fundamental human right—but also it is considered as a good investment. It is true that real estates are heterogeneous because of their various structural, positional characteristics, as well as their local conditions, all of which affect the value of real estates. These are among the reasons for undertaking studies to determine the degree of importance and the parameters affecting the value of residential real estate. By using one of the widely used methods, hedonic pricing method (HPM), this study seeks to determine the structural and environmental characteristics that are effective on residential real estate sale prices in Artvin city center. With the highest number of residential real estate sales in 2015, the Orta neighborhood, in the Central District of Artvin, was chosen as the study area. The relationship between 18 parameters were analyzed, on the basis of the actual sales value, acquired from the purchasers of 81 residential properties in this neighborhood and taking into account the structure of Artvin city. In this context, using the functional form of HPM, semi-logarithmic model was generated. When examining the model, it was determined that four out of the supposedly effective 18 parameters were statistically significant and they were able to explain 84% of the variations on price. Moreover, the parameters of floor area, age, distance to primary school, and distance to city center were effective on the sales prices in the semi-logarithmic model. In addition, the results revealed that the structural characteristics are more influential on real estate prices than the environmental and accessibility features within Orta neighborhood in Artvin.